If anything affects these factors will result in affecting the demand. For example, if inflation is getting too high, interest rates will be increased to stabilize the economic growth in the economy. This is the result of having the economy already close to full capacity which means that a further increase in AD will mainly cause inflation. Demand side policies include monetary policy and Fiscal policy. Monetary policy are actions of central bank, currency board or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates.
(c) deficits. (d) the business cycle. Answer: D Level of difficulty: 1 Section: 1.1 When national output rises, the economy is said to be in (a) an expansion. (b) a deflation. (c) an inflation.
Therefore, when the aggregate demand compared with the economic production capacity is quite low, expansionary monetary policy should be taken into use appropriately. Negative monetary policy is to reduce the level of aggregate demand by cutting the growth rate of money supply. In this policy, it is difficult to obtain the credit and the interest rate increases as well. Therefore, when the inflation is serious, the negative monetary policy is more appropriate. (Stanley Fischer,1993) Monetary policy includes seven aspects: I. controlling the amount of currency issue.
In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services). At the same time, the government may choose to cut taxes, which will indirectly affect the aggregate
The LM Curve will see a shift to the left and decrease the value of "Y" if the IR is higher than the ER of the market. The GDP is increasing in value and there will be an increase of savings.. If the IR was below the equilibrium, the opposite of the previously stated would occur. The LM Curve would see a shift to the right, therefore increasing the value of "Y". The GDP value would then decrease, due to the move from Point A to C, and increase employment which would decrease savings.
Macroeconomic activity Is defined is the study of the economy as a whole, especially whether resources of the society are being used efficiently as possible and whether the ability of the country to satisfy it wants is growing over time. Aggregate supply refers to the value of goods and services that can country can produce. Aggregate demand means the total amount of spending in the economy by groups such as: consumers, business firms, the government and people from overseas who buy our goods and services. If aggregate demand is to high then problems such as inflation occur because the amount of people who want to spend exceeds the amount of goods and services that can be produced. However if aggregate demand is low, the society faces slow growth and unemployment.
1.4 Compare and contrast debt and equity as a source of funds for financial claims. Financial claims: written promises to pay a specific sum of money (the principal) plus interest for the privilege of borrowing money over a period of time. Financial claims are issued by DSUs (liabilities) and purchased by SSUs (assets). Debt Funds: Equity Funds: Funds supplied in the form of a loan. Classified into short-term or long-term facilities Short-term = money Long-term = capital Suppliers of loans or debt funds face credit risk Credit risk: the risk the borrower won’t pay back loan Funds supplied in the form of the acquisition of an ownership share of a business.
Accelerated depreciation does increase the value of an investment, however before it is explained how, it is important to define and point out the relevance of depreciation, book value, market value, inter-period tax allocation and deferred tax liability. Depreciation is a non-cash expense that lowers the value of assets over a period of time. Assets are depreciated for two reasons – wear and tear and old models becoming obsolete. Depreciation’s relevance to accelerated depreciation is that accelerated depreciation is taking base depreciation and accelerating it to report more depreciation earlier in the depreciation cycle. Book value is the value that an asset is on the balance sheet.
These are designed to increase the level of AD and increase in national income. Lower taxation/higher government spending or lower interest rates will encourage more consumption. The diagram shows an increase in real GDP (economic growth) and a falling output gap. We would expect there to be a fall in unemployment. Therefore two objectives have been met.
An increasing marginal cost curve will intersect a U-shaped average cost curve at its minimum, after which point the average cost curve begins to slope upward. This is indicative of diseconomies of scale. For further increases in production beyond this minimum, marginal cost is above average costs, so average costs are increasing as quantity increases. As for the short run average cost curve, initially it is worth producing more, as you are making use of the fixed resource(e.g., reezit machine). however, as the law of diminishing return sets in, it is more costly to produce the extra unit of output.In the short term, there is at least one fixed unit of input that cannot be changed, and because of that, the law of diminishing return applies, saying that as you add successive units of labour into a fixed input, the marginal return diminishes over time.