Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Let us now see a bit more closely how monetary policy works. See Figure
Figure
The initial equilibrium at point E is on the initial LM schedule that corresponds to a real money supply . Suppose now that the nominal quantity of money is increased, for example by open market operations. Given a constant price level, the real quantity of money increases as the nominal quantity of money increases. As a result of the increase in the real quantity of money, the LM schedule shifts to LM1.
For the new schedule LM1, the equilibrium will be at point E1 with a lower rate of interest and a higher level of income.
Let us see a bit more closely how with an expansion in real money supply the economy moves from the original equilibrium at E to the new equilibrium at E1. At the initial equilibrium point, E, the increase in money creates an excess supply of money. The public tries to adjust to the excess supply of money by buying financial assets. As a result of the increase in demand, the price of financial assets rises, and thus the yields decline. The adjustment process in the assets markets is much more rapid than that in the goods market and, therefore, we move immediately to point El when the money supply increases. At E1 the money market clears and the public is holding larger quantity of real money because the interest rate has declined sufficiently. At point E1, however, there is an excess demand for goods. The decline in the interest rate, given the initial income level Y0, raises aggregate demand and thus causes inventories to run down. In response, the output expands and we start moving up the LMl schedule. As output expands, the interest rate rises (after the immediate decline in interest rate when money supply is increased) because increase in output raises the demand for money and the increase in demand for money has to be checked by higher interest rates.
A manager at a local bank analyzed the relationship between monthly salary and three independent variables: length of service (measured in months), gender (0 = female, 1 = male) an
This problem substitutes financial health with housing in a 2 period consumption savings model. The representative consumer has the utility function u(c1, c2) = lnc1 + lnc2 with ea
Suppose that the quantity theory of money holds & the velocity of money are constant at 5. Output is fixed at its full employment value of 10,000 & the price level is 2. a) Ver
Describe the relation of money with wealth and income It is very possible to have a high income but no money and no wealth, or to be very wealthy and have a lot of money but no
Explain the term- inventory investment We would have a negative inventory investment whenever inventories decrease. By net investments we mean gross investments minus depreciat
Henry Ford's Model T was originally designed and built to be run on ethanol. Today, ethanol (190-proof alcohol) can be produced with domestic stills for about $0.75 per gallon. Whe
NATIONAL INCOME STATISTICS
What are the comparative benefit The idea of comparative benefit defines that a nation must specialise in the industries in which it has a comparative advantage. Comparative be
Q. Describe about Components of GDP? By considering all arrows to and from the goods market we see that Y + I m = C + I + G + X. Left hand side is the value of all finishe
Determine about the interest rates The interest rate may be fixed or floating. If it is fixed, you will pay the same percentage for the entire duration of the loan. With a floa
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd