Principles of Economics (Second Edition)
Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393614077
Author: coppock, Lee; Mateer, Dirk
Publisher: W. W. Norton & Company
Question
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Chapter 31, Problem 1QFR
To determine

To explain:

The possibility of changing economic factors in short-run.

Expert Solution & Answer
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Explanation of Solution

In short-run, real economic factors can be altered by increasing money supply. Money supply in short-run can be increased by printing money. As money is printed, it will lead to increase in money supply, thereby more funds will be available at lower interest rate. Lower interest rate enhances investment in the economy. Since investment is a part of aggregate demand, an increase in investment leads to increase in aggregate demand.

Therefore, seeing as a component of aggregate demand, when investment increase the aggregate demand increase which leads to reduce the unemployment in the economy with higher GDP and price levels in the short-run.

Economics Concept Introduction

Money supply:

Money supply is the total amount of cash and term deposits in an economy at a given period of time.

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