Functions and Definitions of Money

Definitions of Money According to Growther, money refers to anything that is generally accepted as a means of exchange. What’s more, it is that which at the same time acts as a measure and store of value. John Maynard Keynes…

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Compare Monetary and Fiscal Policy

Monetary policy and fiscal policy refer to government policies and tools used to control macroeconomic variables as well as financial markets. Whenever economic activities start to slow, these tools are used to accelerate growth. Similarly, when the economy starts to…

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The Construction of Indices used to Measure Inflation

Since inflation has the most impact on the general price level of an economy, it is tantamount to measure inflation using a price index. As such, it is important to understand how a price index is modeled so that inflation…

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Explain Inflation, Hyperinflation, Disinflation and Deflation

Inflation Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time.  Fewer goods and services are bought when price levels rise hence the reduction in purchasing power. Also,…

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Describe Theories of the Business Cycle

Quite a number of theories have been formulated by various economists over the years to try and understand the concept of business cycles. 1. Models with Money Inflation is often speculated as being a result of the business cycle. This…

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Distinguish Long-Run Full Employment, Recessionary Gap, Inflationary Gap and Stagflation

Long-Run Full Employment Long-run full employment equilibrium occurs when the aggregate demand (AD) curve cuts the short-run aggregate supply curve (SRAS) at a point on the long-run aggregate supply curve (LRSS): Since the intersection occurs at a point on the…

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How IS and LM Curves Combine to Generate the Aggregate Demand Curve

Also known as the Hicks-Hansen model, the IS-LM curve is a macroeconomic tool used to show how interest rates and real economic output relate. IS refers to Investment-Saving while LM refers to Liquidity preference-Money supply. These curves are used to…

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Short-run Macroeconomic Equilibrium above or below Full Employment

Short-run macroeconomic equilibrium only occurs when the amount of real GDP demand is equal to the amount of GDP supply. Graphically, this happens at the point where the AD curve intersects the short-run average supply curve exactly on the long-run…

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Fluctuations in Aggregate Demand and Supply

Economists believe that business cycles and fluctuations in levels of GDP are a result of a shift in the aggregate demand or supply surve. The Business Cycle The business cycle (economic expansions and contractions) is mainly caused by changes in…

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Movements Along and Shifts in Aggregate Demand and Supply Curves

Aggregate demand (AD) and aggregate supply (AS) curves are used to address economic issues such as expansions and contractions of the economy, causes of inflation, and changes in unemployment levels. Movements along these curves curve are caused by price level…

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