Applied Economics Essay Example | Topics and Well Written Essays - 1750 words

Applied Economics - Essay ExampleThere is a positive correlation in the midst of the amount of money demand and the changes in monetary insurance. If the governance wants to increase the beat or the supply of property in its prudence then it undertakes an expansionary monetary policy and similarly if it wants to reduce the quantity of money in the economy it adapts a contractionary monetary policy. (Case & charming, 2002)3 This means that if the quantity of money increases in the economy then the aggregate demand shifts outwards or to the right, i.e. more production is demanded at the same price. Conversely, if the supply of money shrinks in the economy then the aggregate demand shifts internal or to the left as a allow for of a decrease in demand of issue at all the various take aims of price in the economy. Graphically it can be as followsCase & Fair (2002) explain that when the quantity of money increases in the economy then the interest rates fall callable to which t he cost of carrying out planned investment decreases and thence there is higher investment expenditure. This in construction increases the output at each price level and the opposite happens when the quantity of money decreases in the economy.4The government also demands the output in name of goods and services. ... If the government wants to increase the quantity or the supply of money in its economy then it undertakes an expansionary monetary policy and similarly if it wants to reduce the quantity of money in the economy it adapts a contractionary monetary policy. (Case & Fair, 2002)3 This means that if the quantity of money increases in the economy then the aggregate demand shifts outwards or to the right, i.e. more output is demanded at the same price. Conversely, if the supply of money shrinks in the economy then the aggregate demand shifts inward or to the left as a result of a decrease in demand of output at all the various levels of price in the economy. Graphically it ca n be as followsCase & Fair (2002) explain that when the quantity of money increases in the economy then the interest rates fall due to which the cost of carrying out planned investment decreases and therefore there is higher investment expenditure. This in turn increases the output at each price level and the opposite happens when the quantity of money decreases in the economy.4Therefore, the changes in the AD can be summed up as follows according to the changes in the quantity of money amplify in the supply of money - total Demand shifts to its right.Decrease in the supply of money - Aggregate Demand shifts to its left.3. Fiscal PolicyFiscal policy includes two componentsGovernment spending and expenditure.Changes in the revenue enhancement policy by the government.3.1 Government spending and expenditureThe government also demands the output in terms of goods and services. Therefore, a change in the government spending or purchases influences the aggregate demand. Government spen ding and