Question

Predict how possible changes in monetary policy may impact the supply and demand of j&j baby powder.

Answer 1

Monetary policy is the policy used by the central bank to control Money Johnson and Johnson baby powder is a consumption good.

* Suppose the central bank conducts an expansionary Monetary policy that involves reducing reserve requirements , purchase of Securities and other measures in order to increase money supply. The policy will affect the demand and supply of the product in the following way .

> The producers and shareholders will be able to get cheap credit, so they make better investment. Efficient promotion and marketing strategies will be adopted. As a result, demand for J and J baby powder will increase. It may also Increase due to increase in consumption resulting from the rise in money supply.

> There will be a rise in prices. Better innovation and reserach financed by bank credit can also lead to technolocal advancement. As a result, there may be an increase in the supply of Johnson and Johnson baby powder.

Now let's assume that, central bank conducts a contractionary monetary policy which involves rising reseve requirements, sale of Securities and other measures to rise money supply.lf will affect the demand and supply of Johnson and Johnson in the following way

* Getting credit becomes expensive. So there will be an overall reduction in consumption and investment in the economy, as a result demand for Johnson and Johnson baby powder will fall.

* Similarly , there may be some supply side disruptions due to fall in prices as a result of decline in money supply.