Question

1) Why is it possible to change real economic factors in the short run simply by printing and distributing more money?

2) Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1-7% regularly.

3) Explain the difference between active and passive monetary policy.

Answer 1

1)Why is it possible to change real economic factors in the short run simply by printing and distributing more money?

Answer: It's conceivable in light of the fact that more cash = increasingly loanable subsidizes which = lower financing costs which = expanded interest for loanable supports which = greater venture.

As a part of AD, expanded venture means expanded AD which prompts lower joblessness, higher GDP and value levels in the short run.

2)Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1-7% regularly.

Answer: In the event that expansion is steady at 5%, the business can successfully adjust to the expense of swelling. On the off chance that expansion is eccentric; the adaption to the expense of swelling may be higher or lower than the genuine degree of swelling.

3)Explain the difference between active and passive monetary policy.

Answer: Dynamic money related strategy is utilized to adjust macroeconomic extensions and compressions. The aloof fiscal strategy is when national banks decide to just mitigate the cash supply and price level through money related approach. The fundamental distinction is that dynamic financial arrangement animates swelling or lessens expansion; though, the uninvolved fiscal approach doesn't utilize swelling to balance out the cash supply.