Explain the impact of money growth on economy under these headlines in detail. 1- Short run?...

Explain the impact of money growth on economy under these headlines in detail.

1- Short run?

2- Adjustment period?

3- Long run?

Solutions

Expert Solution

Answer :- Impact of money growth on economy in short run will cause lower interest rate to borrowers and which will increase consumption as well as economic growth of the country. As more money is available for borrowing will increase public investment . Country's GDP will also increase.

During adjustment period central bank buys government securities through open market and increases the cash reserve of other banks. Lowers the reserve of the other banks to allow more lending to public for their wants and investing in businesses. Reduce the bank interest rate.

In the long run its difficult to predict but there is more chances of rising prices of housing and stocks (assets) due to speculative investments. Misallocation of capital may result in waste. Decline in economic activity due to contraction or recession. Consumer will have to pay higher prices for goods and services rather than earlier.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

What is the impact of money growth on economy (short run, adjustment period and long run)?

Graph and explain in detail the short-run and long-run equilibria under a monopolistic competition situation.

Discuss the impact of money growth on economy under these keywords: Stagflation, overshooting, real balances, Fisher...

Discuss the impact of money growth on economy under these keywords: Stagflation, overshooting, real balances, Fisher effect, inflation, output, expected inflation, unemployment, real interest rate, nominal interest rate.

1. Explain the impact of the weak consumer spending on output and inflation in the short-run,...

1. Explain the impact of the weak consumer spending on output and inflation in the short-run, including showing this on your AS-AD diagram. 2. Use a new diagram to help explain what happens to output and inflation in Australia in the short run when federal government introduces a fiscal stimulus package.

Consider the short-run impact of the U.S. fiscal policy action on the economy of Mexico, a...

Consider the short-run impact of the U.S. fiscal policy action on the economy of Mexico, a small open economy with a floating exchange rate against the U.S. dollar. What is the impact of the U.S. fiscal policy action on consumption, investment, and the unemployment rate in Mexico? Explain.

Explain how will each of these affect the economy in the short run and the long...

Explain how will each of these affect the economy in the short run and the long run (in terms of output, unemployment and inflation) 3. For each of the following what kind of monetary policy do you suggest? a. Government decides to take policy to reduce deficit. b. Construction workers goes on a strike for 2 months. c. US dollar depreciates with respect to euro d. People become more optimistic about the economy e. Productivity of U. S workers increase...

Should the firm shut down in the short-run? Explain in detail why or why not.

Consider the short-run impact of the U.S. fiscal policy action on Bermuda, a small open economy...

Consider the short-run impact of the U.S. fiscal policy action on Bermuda, a small open economy that maintains a fixed exchange rate with the U.S. dollar. What is the impact of the U.S. fiscal policy action on consumption, investment, and the unemployment rate in Bermuda? Explain.

Suppose an economy experiences an increase in productivity. Explain both the short-run and medium-run effects of...

Suppose an economy experiences an increase in productivity. Explain both the short-run and medium-run effects of this increase in productivity on output, employment, and the unemployment rate.

Short Answers A. Explain in detail the role that prices play in a market economy. B....

Short Answers A. Explain in detail the role that prices play in a market economy. B. What are relative prices, and why are relative prices extremely important to the business manager?

Subjects