Question

Why do price levels increase when government adopts fiscal or monetary policy to correct the economy when it faces a recession and high unemployment?

Are there key differences between an increase in the capital stock and an improvement in the level of technology?

Answer 1

Answer - To remove the recession or the unemployment problem , the government or the fed adopts the expansionary fiscal or monetary policy. As the result of this policy , the money supply in the economy increases , the income of the public increases . This increase leads to the increase in the demand in the economy and demand curve shifts to right. As a result of this increase in demand , the price levels rise in the economy .

Answer 2 - Capital stock is the stock or we should say the assets of the enterprise . It is the machinery , equipments etc which the business owns through which the production is carried out.

Technological devepment is the development in this above explained capital stock. When the technological improvement takes place in capital stock then the prodictivity rises.

The capital stock may be obsolete and outdated. But when technological improvement takes place this stock gains more productivity or the new improved stock is added.