Macroeconomics 2

ECON201: Assignment 2 Q1: Define each of the following terms: a) currency - is any(prenominal) commodity or token that is generally congenial as a nub of payment. b)The two official measures of bills: M1 & M2. - M1 consists of currency and travelers checks and checking deposits owned by individuals and businesses. M2 consists of M1 irrefutable time, saving deposits, money market mutual funds, and other deposits. c) transmitniness - is the property of being instantly convertible into a fashion of payment with little loss of value. d)Depository institution - is a firm that takes deposits from households and firms and makes loans to other households and firms. e)Federal funds rate is the enliven rate that banks charge each other on all-night loans of reserves. Q2: In the AS-AD model, LAS (Long Run Aggregate Supply) arc is vertical at the point where the quantity of real GDP supplied equals potential GDP. This means LAS lead remain at this point regardless of any toll change. Explain wherefore monetary value change will not affect LAS? A2: The long run aggregate fork up curve is vertical because potential GDP is independent of the price level. The reason for this independence is that a movement along the LAS curve is accompanied by a change in 2 sets of prices: the price of goods and services and the price of factors of production.

Q3: In the AS-AD model, explain why the supplied quantity of real GDP increases in the short run when the price level rises? A3. A rise in the price level with no change in the money net rate induces firms to increase production which results in the increase of the SAS. Q4: What are the effects of an increase in the potential GDP on both the LAS and SAS curves? A4. When potential GDP increases, both the LAS and SAS curves shift rightward. Q5: What are the effects of a decrease in the money remuneration rate on both the LAS and SAS curves? A5. Increases short-run aggregate cede and shifts the SAS curve rightward and has no effect on LAS... If you want to farm a full essay, order it on our website: Ordercustompaper.com

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