0
What else can I help you with?
Increase in real GDP are often interpreted as increase in welfare. what are some problems with this interpretation?
Increase in Real GDP is often interpreted as increase in welfare because Increase in Real GDP causes an increase in average interest rate in an economy by which Government expenditures (Government purchases and transfer payments) increases. Problem with this interpretation is that the Real GDP increases due to increase in price level or money market by which real money supply decreases and money supply demanded exceeds real money supply. That means that people start demanding more money in order to full fill their requirements.
What is nominal money supply?
Nominal money supply refers to the total amount of money available in an economy at a given point in time, measured in current monetary values without adjusting for inflation. It includes various forms of currency, such as physical cash, coins, and demand deposits held by banks. The nominal money supply is a key indicator used by economists and policymakers to assess liquidity and facilitate monetary policy decisions. It contrasts with real money supply, which accounts for changes in price levels.
Does a change in the nominal quantity of money have real effects in the new Keynesian model?
In the New Keynesian model, a change in the nominal quantity of money can have real effects, particularly in the short run. This is due to price stickiness, which means that prices do not adjust immediately to changes in the money supply. As a result, an increase in nominal money can lead to higher output and employment as firms respond to increased demand before prices fully adjust. However, in the long run, these effects dissipate as prices adjust, and the economy returns to its natural level of output.
Why does aggregate demand go up when money supply increases?
It doesn't. Money supply has no effect on aggregate demand. Aggregate demand is only effected by the buying power of money, real interest rate, and the real prices of exports and imports. If the supply of money goes up it only causes a short term decrease in the nominal interest rate. The price level is not accompanied by a decrease in the supply of money so the real interest rate does not rise.
Can a persons money wage decrease at the same time their real wage increases?
Yes, a person's money wage can decrease while their real wage increases if the rate of inflation decreases faster than the reduction in their nominal wage. For example, if a worker's nominal wage drops by 2% but the inflation rate falls by 5%, the purchasing power of their earnings—real wage—can increase despite the nominal wage decrease. This situation highlights the distinction between nominal and real wages, where real wages reflect the buying power of income adjusted for inflation.
Increase in real GDP are often interpreted as increase in welfare. what are some problems with this interpretation?
Increase in Real GDP is often interpreted as increase in welfare because Increase in Real GDP causes an increase in average interest rate in an economy by which Government expenditures (Government purchases and transfer payments) increases. Problem with this interpretation is that the Real GDP increases due to increase in price level or money market by which real money supply decreases and money supply demanded exceeds real money supply. That means that people start demanding more money in order to full fill their requirements.
Does a change in the nominal quantity of money have real effects in the new Keynesian model?
In the New Keynesian model, a change in the nominal quantity of money can have real effects, particularly in the short run. This is due to price stickiness, which means that prices do not adjust immediately to changes in the money supply. As a result, an increase in nominal money can lead to higher output and employment as firms respond to increased demand before prices fully adjust. However, in the long run, these effects dissipate as prices adjust, and the economy returns to its natural level of output.
Why does aggregate demand go up when money supply increases?
It doesn't. Money supply has no effect on aggregate demand. Aggregate demand is only effected by the buying power of money, real interest rate, and the real prices of exports and imports. If the supply of money goes up it only causes a short term decrease in the nominal interest rate. The price level is not accompanied by a decrease in the supply of money so the real interest rate does not rise.
The real wage will rise if the nominal wage?
The real wage is the amount of money paid when adjusted for inflation. This wage will rise if the nominal wage rises.
The annual nominal rate of interest on a bank certificate of deposit is 12 percent what would be the effect of an inflation rate of 13 percent?
The 12 percent nominal interest means that your money will increase in value by 12% in a year's time in NOMINAL terms.However, the inflation rate of 13 percent says that the cost of goods will increase faster than the value of your deposit.Hence the REAL effect is that the value of your money will fall by 1 percent.
Whats does an increase in nominal GDP imply?
When the nominal GDP increases it implies that prices have increased. Nominal GDP is current prices and real GDP takes prices changes into account.
How can an increase in nominal income and a decrease in real income occur simultaneously?
real income is the change with inflation taken into account, nominal income is purely the change of income therefore if inflation was to be 5% and nominal income increased by 2% there would be a real income decrease of 3%
How does the nominal and real values of things affect the aggregate behavior of a society?
In economics, the nominal values of something are its money values in different years
What is the formula of calculating increase in real GDP?
Nominal GDP/CPI*100 answer will be in $ amount
What is are the differences between Friedman's quantity theory of money and that of Irving fisher's?
Friedman's quantity theory of money focuses on long-run changes in money supply and its relationship with nominal income. Fisher's quantity theory expands on this to account for both short-run and long-run changes in money supply and velocity of money. Fisher also incorporates the concept of the equation of exchange to explain the relationship between money supply, velocity, price level, and real income.
What is nominal price and real price?
Real price is in a mud nominal price is in your FACE
Define money supply?
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions).[2][3]Money supply data are recorded and published, usually by the government or the central bank of the country. Public and private sector analysts have long monitored changes in money supply because of its possible effects on the price level, inflation and the business cycle.[4]That relation between money and prices is historically associated with the quantity theory of money. There is strong empirical evidence of a direct relation between long-term price inflation and money-supply growth, at least for rapid increases in the amount of money in the economy. That is, a country such as Zimbabwe which saw rapid increases in its money supply also saw rapid increases in prices (hyperinflation). This is one reason for the reliance on monetary policy as a means of controlling inflation.[5][6]This causal chain is contentious, however: some heterodox economists argue that the money supply is endogenous (determined by the workings of the economy, not by the central bank) and that the sources of inflation must be found in the distributional structure of the economy.[7]In addition to some economists'[who?] seeing the central bank's control over the money supply as feeble, many would also[who?] say that there are two weak links between the growth of the money supply and the inflation rate: first, an increase in the money supply, unless trapped in the financial system as excess reserves, can cause a sustained increase in real production instead of inflation in the aftermath of a recession, when many resources are underutilized. Second, if the velocity of money, i.e., the ratio between nominal GDP and money supply, changes, an increase in the money supply could have either no effect, an exaggerated effect, or an unpredictable effect on the growth of nominal GDP.
