. deflation despite increases in money supply. Take an example 2. Moderate inflation in a good economy. Take an example. 3. What is a Crowding out. Take an example
1. deflation despite increases in money supply. Take an example
2. Moderate inflation in a good economy. Take an example.
3. What is a Crowding out. Take an example
1.
In the case of liquidity trap the LM curve is horizontal and in this scenario any change in money supply will not affect rate of interest and level of income. It means that monetary policy is completely ineffective in liquidity trap because change in money supply does not have any effect on interest rate and output.
Whereas in fiscal policy an increase in government spending will not have any effect on interest rate but it has a positive impact on level of output.
2.
Inflation is good for economy only when it is moderate. Moderate inflation boost economic growth and creates more demand as consumer expects prices to be rise in future, so consumer prefers to buys as many as they can at current price.
This will increase demand to meet high demand producers higher more worker which helps in creating job opportunities due to this unemployment rate will also decrease.
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