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This is the solution of business macro-economic assignment help in which we discuss about fluctuations of prices when inflation or deflation rise in economy of a country and effects
In view of the fact the economy is currently in equilibrium:
Y = C + I + G + X – M
Consumption (total) + Investment + Government expenditure + Exports – Imports = $ 92 Bn.
Leave of injections:
J = I + G + X
Investment + Government expenditure + Imports = $ 24 Bn.
Level of withdrawals
In equilibrium, withdrawals will equal current injections
Hence W = $ 24 bn
W= S + T + M
Hence, S = W-T-M = 24-7-8 = $9 Bn
Cd= C – M = $ 50 bn
Mpcd = (58-50)/(80-70) = 0.8
- Multiplier = 1 / (1 – mpcd) = 5
- Injections have risen by $4bn + $1bn – $2bn = $3bn ( national income will rise by 5 times this amount = increase of $15bn
- Imports of goods
- Exports of services
- Drawing on reserves
- Capitals transfers to the nations from overseas
- Short term financial outflow
- Other income inflows
- The nations investment overseas
- Capital transfer to the nation from overseas
- Investment in the nation from overseas
- Exports of goods
- Yes Government securities purchases leads to payment to the bank accounts which increases the banks being able to increase money available for lending. This increases the monetary supply.
- No When the interest rates is increased, the number of loans decrease, which decreases the amount of money in circulation.
- No If the government borrows from bank, it will mean that it is borrowing from public which will decrease money supply.
- Yes when a central bank purchases government securities from commercial banks and institutions, the bank assets are freed up and they can lend more, thus increasing the quantity of money in circulation.
- No this will be done through con decreasing the monetary supply.
- An improvement in the marketing and selling skill of the firm managers will lead to an exogenous increase in consumer spending. This will shift the aggregate demand curve to the right and this will also increase the price level.
- A decrease in income tax will lead to an exogenous increase in consumer spending. This will shift the aggregate demand curve to the right and this will also increase the price level.
- An increase in import and an increase in export of the similar magnitude will shift the demand lower and then higher and it will settle at the initial position.
- Destruction in capital stock will decrease the supply and thus will shift the supply curve to the left and this will increase the price levels.
Following are few of the advantages of consumer price index:
Large Categories: The categories which are considered for consumer price index is large enough for making the consumer price index a very valid and relevant indicator of the same in view of the fact the same includes food, beverages, transportation, housing, medication etc
Measurable: Consumer price index is easily quantifiable and hence it can be used for comparing prices and inflations.
- Following are few of the disadvantages of consumer price index:
- Fluctuations: Due to the frequent fluctuations of prices of the consumer price index can be invalid due to wrong choice of products
- Overestimated Inflation: consumer price index fails to consider the effect of technology and technological improvements for productions.
- People who typically have a fixed income or fixed wage contract lose from the inflation since their salary or pay does not rise according to the incremental inflation and thus incremental cost of living. Also people who are unemployed will lose from the same. People having a high amount of saving also tend to lose from inflation in view of the fact the saving loses its monetary value quickly.
On the other hand people who are salaried with salaries linked to the economic condition win from the inflation since their salary or pay rises according to the incremental inflation and thus incremental cost of living. Also people with high amount of debt also tend to win from inflation in view of the fact the debt loses its monetary value quickly.
For more information read Macro-Economics Assignment
Peston, Maurice (2002). "IS-LM model: closed economy". In Snowdon, Brian; Vane, Howard R. An Encyclopedia of Macro economics. Edward Elgar.
Snowdon, Brian; Vane, Howard R. (2005). Modern Macro economics: Its Origins, Development And Current State. Edward Elgar Publishing.
Gärtner, Manfred (2006). Macro economics. Pearson Education Limited.
Dwivedi, D.N. (2001). Macro economics: theory and policy. New Delhi: Tata McGraw-Hill.