So an increase in expected profit will shift alienable demand to right . As we can see from the graph , DOLL will shift to DOLL. The point (1, 6) will change to the point (1. 5, 8) . Then, the greater a household’s disposable income, other remaining the same , the greater is its saving . Saving is the main item that makes up the supply of alienable funds. So , an increase in disposable income will shift OSLO to SELF . The point will vary from ( 1. 5, 8) to ( 2,6) 3) In conclusion, the real interest rate remains the same level at 6(percent per year). If China’s government increases its budget surplus, there is an increase in the supply of alienable funds, how does it affect private saving and investment? Explain the reason. The answer: china’s government budget surplus increases the supply of alienable funds . The supply curve will shift to right. So , the real interest rate falls, which decreases the quantity of private saving. The lower interest rate increases the quantity of alienable funds demanded and increases investment. ) In an individual economy that is integrated into the global market, the demand or alienable funds is determined by the country’s demand and the supply of alienable funds is determined by the world’s supply. If a country has a shortage of alienable funds at the world real interest rate, how does this situation affect the flow of alienable funds at world market? The answer: The alienable funds at world market will flow from the other countries ( world’s supply ) to domestic country( this country). F a country has a shortage of alienable funds at the world real interest rate , as we can know from the graph b, this county’s interest rate s higher than the world’s rate. Compared with the domestic supply, the cost of borrowing from the world will lower. So, this country prefer borrow money from the world supply. In conclusion , the money will flow from the lower interest rate country to the higher interest rate country.
Briefly describe money’s function from the view of economists and write down the definition of MI and MM.
The Answer: Moneys Function:
- a means of payment: a method of settling a debt.
- medium of exchange A medium of exchange is an object that is generally accepted in exchange for goods and services.
- unit of value: an agreed measure for stating the prices of goods and services.
- store of value: money can be held for a time and later exchanged for goods and services. MI: currency plus cacheable deposits held by individuals and business. MM: MI pull all other deposits – non- cacheable deposits and fixed term deposits.
- How do banks create money multipliers? List the whole process of doing it.
The money multiplier is the ratio of the change in the quantity of none to the change in the monetary base( notes,coins and bank’s deposits at the Bank of Canada). The money multiplier depends on the desired reserve ratio and the currency drain ratio. List of the whole process:
- Initial increase in monetary base . Banks make the loans. The quantity of money in the market increase knew money is to make payments some of new money remains on deposits
- Some of the new money is a currency drain. 7 Desired reserves increase because deposits have increased.
- Excess reserved decrease .