Question

a) When looking at prices, you will find that they are always changing in our economy. Why do you think this is important to evaluate for our economy?

b) What would be appropriate monetary policy for our economy right now?

Answer 1

a. price theory is important microeconomic factor because it is focal point in the market. supplier and demand are functional on the behalf of price theory. market are cleared taking the price as important element. pricing varies due to changes in the economy. dynamic economy always work towards new way of thinking, implementing and evaluation. price guides the economy as whole being a focal point. various economic activities like consumption, investment, saving and distribution function which is based on some income and prices in the economy. price helps to justify the inflation/ deflation in the economy. accordingly fiscal and monetary policy works, consumer equilibrium regarding income and price also important in this circumstance. as price guides the behavior of consumer, firm , industry and government too. so price as micro variable guides the macro economic variable.

B. As whole world is facing COVID crisis . both fiscal and monetary policy has been leaned to increase the economic activities again. monetary policy has also downed and we are following expansionary monetary policy to increase the money supply and velocity of money in the economy. during this pandemic situation, government would take precautionary measure to correct the economy. during this time central bank will suspend various economic activities that will create burden on the people. central bank will reduce the CRR and SLR and repo rate so that lending and investment activities could take place again. monetary policy should work for the restructuring of the economy as whole because various economic variable are connected with each other.