To explain:
The possibility of changing economic factors in short-run.
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
Therefore, seeing as a component of aggregate demand, when investment increase the aggregate demand increase which leads to reduce the
Money supply:
Money supply is the total amount of cash and term deposits in an economy at a given period of time.
Want to see more full solutions like this?
Chapter 31 Solutions
Principles of Economics (Second Edition)
- Is the demand for money function stable over time?arrow_forwardWho determines money supply and how does the money supply curve look like?arrow_forwardhow might this change in interest rates and the supply of money affect the value of money? What happens in the circular-flow-diagram if borrowing money becomes expensive for businesses and consumers? What happens to employment?arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc