Introduction to Economics 2

Yanıt Açıklaması: Increase in money supply is the main reason for the continuing inflation of an economy.

Yanıt Açıklaması: Economic growth is the percentage increase in the gross domestic product of nation from a period to another period of time.

Yanıt Açıklaması: External Equilibrium refers to the balance of payments equilibrium.

Yanıt Açıklaması: The increase in the price level leads to an increase in the demand for money. If the supply of money is constant, increase in money demand will increase interest rates in the money market. An increase in the interest rate will result in a reduction in planned investment expenditures. This new emerging equilibrium position in the economy corresponds to high government expenditures, low investment expenditures, higher interest rate and increasing price level.

Yanıt Açıklaması: Cheques and cryptocurrencies are not considered as a type of money.

Yanıt Açıklaması: Page 41-42

Yanıt Açıklaması: All growth models mentioned emphasize the importance of saving rate in economic growth. So, there is a need for the government policies to improve the saving rates. Saving rate can be increased by raising the real interest rate. Increase in real interest rate encourages savers for saving. However, it should be noticed that the empirical study results show that the response of saving to changes in the real interest rate seems to be small. Another way to increase national saving is to increase government saving.

Yanıt Açıklaması: Providing us with a chance to compare the level of development of countries is more like a strength rather than being a weakness.

Yanıt Açıklaması: Factors that shift the aggregate supply to the right include increase in government expenditures, decrease in taxes and increase in money supply.

Yanıt Açıklaması: Each factor affecting the firm’s production decisions causes the AS curve to shift. Some of these factors are cost shocks, economic growth, investment gap, natural factors and war.

Yanıt Açıklaması: Correct answer is B.

Yanıt Açıklaması: When the prices are at a certain level, the central bank increases the money supply, causing the interest rate to fall in the money market. The decline in interest rates increases planned investment expenditures and therefore aggregate expenditures. The increase in money supply is the increase in production at a certain price level. In this case, the AD curve will shift to the right. Assume that the aggregate supply curve is constant, the aggregate demand curve shifs to the right from AD1 to AD2. In this case, the equilibrium shifts from point D1 to point D2. Eventually, the general price level in the economy increases from P1 to P2, while the equilibrium income level increases from Y1 to Y2.

Yanıt Açıklaması: In the flexible exchange rate system, currency depreciation is the fall in the value of one currency in terms of another currency. On the other hand, currency appreciation is the rise in the value of one currency in terms of another currency. Currency depreciation and currency appreciation are the terms which are only used in the flexible exchange rate system.

Yanıt Açıklaması: Favorable weather conditions are one of the factors that increase the aggregate supply and, therefore, it shifts the AS curve to the right.

Yanıt Açıklaması: Aggregate demand curve represents the negative relationship between price level and output quantity.

Yanıt Açıklaması: The assumptions of the Solow Growth Model it is closed economy without governmentç.

Yanıt Açıklaması: Monetary policy is the decisions made by central bank to affect the quantity of money in the country. While making monetary policy decisions, the objective of government is to achieve and maintain full employment without causing inflation. When a slowdown occurs in economic activities and economy signals an upcoming recession, central bank will decide to raise money supply and decrease the interest rates. Specifically, monetary authorities (institutions responsible for implementing the monetary policy, primarily central bank) will facilitate the availability of credits. This kind of monetary policy is named as loose or expansionary monetary policy. On the other hand, if economy recovers more than required and there are signs of inflationary threats, monetary authorities would decide to slowdown the money supply and to increase interest rates. This kind of monetary policy is named as tight or contractionary monetary policy.

Yanıt Açıklaması: The Harrod-Domar growth model leaves many questions about the determinants of growth and the differences in level of development among the economies. It relates economic growth to the capital growth without answering the questions such as;”What’s the relationship between the long-run economic growth and the saving, population growth rate, and rate?”

Yanıt Açıklaması: By comparing the nominal and real growth rates, we can easily notice that the real growth rates are smaller than the nominal growth rates and the difference represents the price changes in the time period.

Yanıt Açıklaması: Velocity of money is the number that represents, on average, how many times one unit of money is used for purchasing final goods and services.