Question

explain the following:

* Money supply curve is vertical.

* policy is not efficient in the Long run

Answer 1

1. Supply Curve for money :- The Supply Curve for money exemplify the quantity of money supplied at a given interest rate. The money supply is a fixed amount, it will change when either the monetary base changes or banks make loans.

The money supply is decided by the monetary base and the money multiplier.

Money Supply is vertical because it does not depend on interest rates. It is completely dependent on the decisions made by the Central Bank of the Company.

Diagram

2. Policy is not efficient in the long run:-

The long run is a period of time in which all factors of production and costs are changeable. In the long run, all firms are able to modify all costs.

In long run, the number of firms can enter and exit the marketplace. And firms can earn positive, negative or zero profit. The land, labor, capital goods and entrepreneurship will reach the minimum level of long run average cost.

So, policy which can be efficient in short run will not be compulsarily be efficient in the long run.