Question

1. With so many foreigners living in Thailand, a number of them western and non-western, work in the Kingdom without proper approval; work permits. As they are paid cash for their illegal work, how do you think this affects the Thai economy, money supply, and capital available for loan.
2. Consider an economy. This economy’s real GDP is constant. The government decides to buy out the government bonds from the commercial banks. What macroeconomic variables will such policy affect? Explain why. Would this effect be different if there was more output produced in the same year? What concept explains this?
3. Over 2018 the cumulative inflation in Venezuela reached 80,000%. How is such phenomenon called? What can cause inflation to reach such value? Explain your answer using the quantity theory of money. Give examples.

Answer 1

If more people's are worked in cash payments or paid in cash then it means flow of money will be increase in the economy and government don't have that idea or record regarding the cash flow in the economy, So it effects the balance of money supply and capital available for the loan.

If government don't have proper information for the cash flow in the economy, then it is difficult for the central bank to manage their policies.

In this case money supply not rises, only cash flow is rises because mostly people's can do transactions in cash. So it effects the Thailand economy, the GDP level will be decrease and the inflation will be increase. If people cannot deposit money in the bank then capital available for loan will automatically decreases in the bank because money received in bank directly proportional to the loan availability in the bank.

Theory of money states that, "Money supply is directly proportional to the price level in economy". So if cash flow is increase in economy then price level is also increase, which will be the cause of inflation.

For example:- A person will work in wages and get money in cash and another person will get salary in bank account, so government have only record of one person and other person can effects the economy.