- (a) Explain the adjustment process that creates a change in the price level when the
money supply increases. [5 marks]
(b) Explain with the aid of a diagram what happens to the money supply, money
demand, the value of money, and the price level if the central bank increases the
money supply. [5 marks]
(c) Explain with the aid of a diagram what happens to the money supply, money
demand, the value of money, and the price level if people demand less money at
every price level. [5 marks]
Answer by bachfan
a) When the money supply increase, the vertical money supply curve will shift to the right, decreasing the nominal interest rate. As a result, with a lower nominal interest rate, people tend to consume more since saving money in banks wouldnt benefit much. Hence, aggregate demand curve shifts to the right, increasing the price level.
b) Money supply: increase
Money demand: no direct relationship with changes in money supply
Value of money: Decrease (since increase in price level, i.e. inflation, leads to decrease in
purchasing value of money)
Price level: Increase
- What characteristics or properties does money have?
Answer by Nick R
Money has no qualities. Personal satisfaction is the quailty money can address. Money, in fact, is dirty, and germ infested.
The perception of what money will bring to you is a quality of life one feels one must have. Money will create more problems than it can possibly solve.
- what does money order mean?
paying through money order??
Answer by ang l
a money order is the same as cash. you buy a money order, there are lots of places that sell them like grocery stores or Minny markets. you full it out the same as a check and send it off to whoever you owe the money to. keep the duplicate for proof of payment.
- Does issuing fiat money lead to inflation?
Answer by Michael T
Not necessarily. But it doesnt prevent inflation either, so fiat money and an undisciplined fiscal policy can lead to inflation.
There are good things about fiat money. In particular it makes it easier to stimulate the economy or to curb inflation during a boom. But the discipline has to be there or else youre just printing money to pay off debts.
- Im talking Great Sex & Loads of Money !
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Answer by kassie
it depends on how old u r.
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