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Economics Assessment - Assignment Example

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This assignment "Economics Assessment" covers a number of topics, such as macroeconomic shocks: insufficient demand cases, policy issues, fiscal policy and monetary policy…
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Economics Assessment
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Download file to see previous pages Even the recession in other foreign countries also has an effect on demand for a product of the United States. After falling of aggregate demand, if there are no chances of raising it, then the producers will bring down the production level, and to maintain the cost they will lay-off employees. This leads to an increase in unemployment. As the output is low, the demand for money will also get lower and that is why interest rate will below. Here, the price level will become unchanged.
The second shock is based on money and recession caused by credit limits. It is mainly caused for the low money supply and velocity with rises in the price index. The reason behind it is tightened monetary policy where financial institutions try to reduce the number of loans. As the money supply is low, the interest rate will become high which directly affects the demand for goods. And again same as demand caused recession the output and employment will below.
The third shock is cost-push inflation. It occurs mainly because of an increase in the cost. At the first stage, it happens because of the rise of wage which ultimately raises the cost and then the price also. So, demand will become low and a result of that production will also be low and employment will get affected. The high level of price demand for money will raise which means the interest rate will also rise. These are the effects of the cause - push inflation.
The growth problem indicates a higher level of gross domestic product (GDP). However, GDP increases the demand for money and so the interest rate becomes high but the demand for goods is comparatively low that is why producers start producing less which brings down the output as well as the employment. Ultimately the demand for money will become low which will lead to a fall in interest rate.
It is not necessary that inflation will happen because of the money every time; it can be caused by demand also. ...Download file to see next pagesRead More
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