Question

Find the economic definitions to the following terms:

Long Run Real GDP

Monetary Policy

Expansionary Monetary Policy (Easy Money)

Contractionary Monetary Policy (tight Money)

Reserve Requirement

Monetary Multiplier

Tools for Monetary Policy

Aggregate Demand & Aggregate Supply Model

Price Level

Production Possibilities Frontier

Money Neutrality

Exchange Rates

Real Exchange Rates

Real Interest Rate

No more than 2 or 3 sentences per term please. Thanks

Answer 1

ANSWER: Long run real GDP: Long run real GDP of a country is a measurement of ecomonic output that accounts for the effects of inflation or deflation.

MONETARY POLICY: It is the policy of a country heighest monetary authority to control money supply and inflation rate of the economy. The monetary policy play an important role to stabilised economy.

EXPANSIONARY M POLICY: a policy by monetary authorities to expand the money supply & boost economic activity, mainly keeping interest rate low to encourage borrowing by companies, individuals and banks.

CONTRACTIONARY MONETARY POLICY: a policy by the monetary authorities to decrease money supply and control of inflation rate.Decrease of money supply cause increasing borrowing cost.

RESERVE REQUIRMENT: it is a central bank regulation policy mostly used by world central banks , it sets the minimum amount of reserve that must be held by a commercial bank and this rate is also fixed by central bank.

MONETARY MULTIPLIER: It refers to how an initial deposite in bank can lead to a bigger final increse in the total money supply. It shows the bank credit creation capacity.

TOOLS FOR M POLICY: It is the various instrument of the monetary authorities to control the money supply, interest rate, inflation ect. Tools of monetary policy are open market operation,discount rate and reserve requirment.

AGGREGATE DEMAND AND SUPPLY MODEL: The AD-AS is a macro economic model that explain price level and output through the relationship of aggregate demand and aggregate supply.

PRICE LEVEL: The price level is a hypothetical daily measures of over all prices for some sets of goods & services in the economy.

PRODUCTION POSSIBILITY FRONTIER (PPF): it shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully & effectively employed.

MONEY NEUTRALITY: It is the idea that a changes in the stock of money affects only nominal variables in the economy such as prices, wages, & exchanges rates , with no affects on real variable like employment, real GDP & real consumption.

EXCHANGE RATE: It the rate at which one country currency exchange to the rest of the world.

REAL EXCHANGE RATE: It the exchange rate where inflation or price level of the two country is adjusted.

REAL INTEREST RATE:It is the iterest rate where inflation rate is adjusted. Real interest rate is nominal interest rate minus the inflation rate.