Concept explainers
Concept Introduction:
Expansionary Monetary Policy: This policy is used by the government to expand the money supply in the economy. Money supply is increased by reducing the interest rate, as lower interest rates will encourage people to borrow more.
Contractionary Monetary Policy: This policy is used by the government to contract the money supply from the economy. Money supply is reduced by increasing the interest rate, as higher interest rates will de-motivate people to borrow.
Inflationary gap: At the level of full employment, if the value of real
Recessionary gap: At the level of full employment, if the value of the potential GDP is greater than the value of the real GDP, it leads to an emergence of the recessionary gap.
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- everything is in the image!arrow_forwardRespond to isaiah Great day everyone and welcome to week 6! Every time we start to have fun, the government ruins it! The success of your business due to the strong economy explains why my spouse feels excited. The increase in interest rates may lead to a decline in new home demand. When mortgage rates rise they lead to higher costs which can discourage potential buyers and reduce demand in the housing market. The government increases interest rates as a measure to suppress inflation and stop the economy from growing too fast. Business expansion during this period presents significant risks. Before making significant investments it would be prudent to monitor how the market responds to the rate increase. Business expansion during a decline in demand for new homes could create financial difficulties.arrow_forwardPlace the labeled CS to represent the new consumer surplus in the market and the area labeled PS to represent producer surplusarrow_forward
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