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1. Course: Introduction to Macroeconomics (802)
Semester: Spring, 2022
ASSIGNMENT No. 2
Q.1 Discuss the cyclical and secular consumption income relationship in detail.
Many of these studies were carried out on time series, the general practice being to co-relate
aggregate consumption expenditures over time with aggregate disposable income and various
other variables.
The basic tenet of the absolute income theory is that the individual consumer determines what
fraction of his current income he will devote to consumption on the basis of the absolute level of
that income. Other things being equal, a rise in his absolute income will lead to a decrease in the
fraction of that Income devoted to consumption. The first statement of this hypothesis was,
perhaps, made by Keynes in the General Theory.
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According to absolute income theory (AIT) the level of consumption expenditures depends on the
absolute level of income, with APC declining as the level of income increases. Since the level of
national income grows over time, the AIT concludes that the APC should diminish continuously.
The consumption function or propensity to consume refers to income-consumption relationship. It
is a “functional relationship between two aggregates, i.e., total consumption and gross national
income.” Symbolically, the relationship is represented as C = f(Y), where C is consumption, Y is
income, and f is the functional relationship. Thus the consumption function indicates a functional
relationship between C and Y, where C is the dependent by Y is the independent variable, i.e., C
is determined by Y. The consumption function is a relationship between current disposable
income and current consumption. It is intended as a simple description of household behavior that
captures the idea of consumption smoothing. We typically suppose the consumption function is
upward-sloping but has a slope less than one. So as disposable income increases, consumption

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also increases but not as much. More specifically, we frequently assume that consumption is
related to disposable income through the following relationship:
consumption = autonomous consumption + marginal propensity to consume × disposable income.
A consumption function of this form implies that individuals divide additional income between
consumption and saving.
 We assume autonomous consumption is positive. Households consume something even if
their income is zero. If a household has accumulated a lot of wealth in the past or if a
household expects its future income to be larger, autonomous consumption will be larger. It
captures both the past and the future.
 We assume that the marginal propensity to consume is positive. The marginal propensity to
consume captures the present; it tells us how changes in current income lead to changes in
current consumption. Consumption increases as current income increases, and the larger the
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marginal propensity to consume, the more sensitive current spending is to current disposable
income. The smaller the marginal propensity to consume, the stronger is the consumption-
smoothing effect.
 We also assume that the marginal propensity to consume is less than one. This says that not
all additional income is consumed. When a household receives more income, it consumes
some and saves some.
In symbols, we write the consumption function as a relationship between consumption (C) and
disposable income (Yd):
C = a + bYd
where a and b are constants. Here a represents autonomous consumption and b is the marginal
propensity to consume. We assume three things about a and b:
1.a > 0
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2.b > 0
3.b < 1
The first assumption means that even if disposable income is zero (Yd = 0), consumption will still
be positive. The second assumption means that the marginal propensity to consume is positive.
By the third assumption, the marginal propensity to consume is less that one. With 0 < b < 1, part
of an extra dollar of disposable income is spent.
What happens to the remainder of the increase in disposable income? Since consumption plus
saving is equal to disposable income, the increase in disposable income not consumed is saved.
More generally, this link between consumption and saving (S) means that our model of
consumption implies a model of saving as well.
Using
Yd = C + S
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and
C = a + bYd
we can solve for S:
S = Yd − C = −a + (1 − b)Yd.
So −a is the level of autonomous saving and (1 − b) is the marginal propensity to save.
We can also graph the savings function. The savings function has a negative intercept because
when income is zero, the household will dissave. The savings function has a positive slope
because the marginal propensity to save is positive.
Economists also often look at the average propensity to consume (APC), which measures how
much income goes to consumption on average. It is calculated as follows:
APC = C/Yd.

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When disposable income increases, consumption also increases but by a smaller amount. This
means that when disposable income increases, people consume a smaller fraction of their income:
the average propensity to consume decreases. Using our notation, we are saying that
using C = a + bYd, so we can write
APC = a/Yd + b.
An increase in disposable income reduces the first term, which also reduces the APC.
Consumption is not only a function of income but income can also be a function of consumption.
Since families want to maintain their high consumption standard, they must put even their non-
earning members to work so that the income of the family could go up and consumption
standards could be maintained, despite, a fall in incomes on account of depression. the function
states that increases in consumption are proportional to any size increase in income, no matter
how large or small. It seems reasonable to suggest that unexpectedly large increases in income
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result, at least initially, in less than proportional increases in consumption. Third, one might argue
that consumer behaviour is slowly reversible over time instead of being truly irreversible. Then
previous peak income would have less effect on current consumption the greater the elapsed time
from the last peak. However, recent advances in the theory of consumption function have been
able to settle these difficulties.
Q.2 Discuss the impact of finance on the determination of interest rate.
Money is a critical component of a modern economy because it facilitates voluntary exchanges.
What exactly money is and how it fulfills this role is not widely understood. This chapter defines
money and explains how a country’s central bank determines the amount of money available in
an economy. It also shows how changes in the amount of money in a country influence two very
important macroeconomic variables: the interest rate and the inflation rate. A country’s money
supply is mostly the amount of coin and currency in circulation and the total value of all checking
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accounts in banks. These two types of assets are the most liquid (i.e., most easily used to buy
goods and services). The amount of money available to spend in an economy is mostly
determined by the country’s central bank. The bank can control the total amount of money in
circulation by using several levers (or tools), the most important of which is the sale or purchase
of U.S. government Treasury bonds. Central bank sales or purchases of Treasury bonds are called
“open market operations.”
Money demand refers to the demand by households, businesses, and the government, for highly
liquid assets such as currency and checking account deposits. Money demand is affected by the
desire to buy things soon, but it is also affected by the opportunity cost of holding money. The
opportunity cost is the interest earnings one gives up on other assets to hold money.
If interest rates rise, households and businesses will likely allocate more of their asset holdings
into interest-bearing accounts (these are usually not classified as money) and will hold less in the

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form of money. Since interest-bearing deposits are the primary source of funds used to lend in the
financial sector, changes in total money demand affect the supply of loanable funds and in turn
affect the interest rates on loans.
Money supply and money demand will equalize only at one average interest rate. Also, at this
interest rate, the supply of loanable funds financial institutions wish to lend equalizes the amount
that borrowers wish to borrow. Thus the equilibrium interest rate in the economy is the rate that
equalizes money supply and money demand.
Using the money market model, several important relationships between key economic variables
are shown:
 When the money supply rises (falls), the equilibrium interest rate falls (rises).
 When the price level increases (decreases), the equilibrium interest rate rises (falls).
 When real GDP rises (falls), the equilibrium interest rate rises (falls).
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Connections
The money market model connects with the foreign exchange (Forex) market because the interest
rate in the economy, which is determined in the money market, determines the rate of return on
domestic assets. In the Forex market, interest rates are given exogenously, which means they are
determined through some process not specified in the model. However, that process of interest
rate determination is described in the money market. Economists will sometimes say that once the
money market model and Forex model are combined, interest rates have been “endogenized.” In
other words, interest rates are now conceived as being determined by more fundamental factors
(gross domestic product [GDP] and money supply) that are not given as exogenous.
The money market model also connects with the goods market model in that GDP, which is
determined in the goods market, influences money demand and hence the interest rate in the
money market model.
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It is important to note that financial institutions make money (here I really should say “make a
profit”) by lending to one group at a higher rate than it borrows. In other words, financial
institutions accept deposits from one group of people (savers) and lend it to another group of
people (borrowers.) If they charge a higher interest rate on their loans than they do on deposits,
the bank will make a profit.
This implies that, in general, interest rates on deposits to financial institutions are lower than
interest rates on their loans. When we talk about the equilibrium interest rate in the forthcoming
model, it will mostly apply to the interest rates on deposits rather than loans. However, we also
have a small problem in interpretation since different deposits have different interest rates. Thus
which interest rate are we really talking about?
The best way to interpret the equilibrium interest rate in the model is as a kind of average interest
rate on deposits. At the end of this chapter, we will discuss economic changes that lead to an
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increase or decrease in the equilibrium interest rate. We should take these changes to mean
several things. First, that average interest rates on deposits will rise. Now, some of these rates
may rise and a few may fall, but there will be pressure for the average to increase. Second, since
banks may be expected to maintain their rate of profit (if possible) when average deposit interest
rates do increase, average interest rates on loans will also increase. Again, some loan rates may
rise and some fall, but the market pressure will tend to push them upward.
The implication is that when the equilibrium interest rate changes we should expect most interest
rates to move in the same direction. Thus the equilibrium interest rate really is referring to an
average interest rate across the entire economy, for deposits and for loans.
The key distinguishing feature of money, as compared with other nonmoney assets, is its role as a
medium of exchange. Coin, and later currency, came into existence primarily to serve as a vehicle
for the exchange of goods and services. Rather than hauling around items that you might hope to

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barter exchange for other goods you need, it is easier and more efficient to carry coin and
currency to purchase goods. However, in order for money to function in this role, it must have
widespread acceptability. Anyone selling something you want must be willing to accept the coin
or currency you have. Their willingness to accept will in turn depend on the expectation that
they’ll be able to use that coin later to buy the goods they want.
Other types of assets are often not acceptable as a medium of exchange. For example, if I own a
$1,000 U.S. savings bond, I am unlikely to be able to use the bond to purchase items in a store.
Bonds can be traded at a bank or a bond market, where exchanges of this sort are common, but
not anywhere else. Thus bonds do not function as a medium of exchange.
Liquidity is a term used to describe the distinction made here between bonds and currency. An
asset is said to be liquid if it is readily exchangeable for goods and services. An asset is illiquid if
it is not easily exchangeable. Thus coin and currency are very liquid assets, while bonds are more
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illiquid. Real estate is an example of a very illiquid asset since it could take a considerable
amount of time to convert the ownership share of a home into a spendable form.
The size of the money stock in a country is primarily controlled by its central bank. In the United
States, the central bank is the Federal Reserve Bank while the main group affecting the money
supply is the Federal Open Market Committee (FOMC). This committee meets approximately
every six weeks and is the body that determines monetary policy. There are twelve voting
members, including the seven members of the Fed Board of Governors and five presidents drawn
from the twelve Federal Reserve banks on a rotating basis. The current Chairman of the Board of
Governors is Ben Bernanke (as of January 2010). Because Bernanke heads the group that
controls the money supply of the largest economy in the world, and because the FOMC’s actions
can have immediate and dramatic effects on interest rates and hence the overall United States and
international economic condition, he is perhaps the most economically influential person in the
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world today. As you’ll read later, because of his importance, anything he says in public can have
tremendous repercussions throughout the international marketplace.
3. According to the Solow model of economic growth, how would each of the following
affect consumption per worker in the long run (in the steady state)?
i) A permanent Increase in Energy Prices
The three sources of economic growth are capital growth, labor growth, and productivity
growth. The growth accounting approach is derived from the production function.
A decline in productivity growth is the primary reason for the slowdown in output growth in the
United States since 1973. Productivity growth may have declined because of deterioration in the
legal and human environment, reduced rates of technological innovation, and the effects of high
oil prices. To some extent the apparent decline in productivity may be due to measurement
difficulties.
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The rise in productivity growth in the 1990s occurred because of the revolution in information
and communications technologies (ICT). Not only were there improvements in ICT, but also
government regulations did not rein in the growth of productivity in the United States, as they did
in other countries, such as those in Europe. In addition, intangible investment (research and
development, reorganization of firms, and worker training) allowed the ICT improvements to
boost productivity. A steady state is a situation in which the economy’s output per worker,
consumption per worker,
and capital stock per worker are constant.
If there is no productivity growth, then output per worker, consumption per worker, and capital
per worker will all be constant in the long run. This represents a steady state for the economy.
The statement is false. Increases in the capital-labor ratio increase consumption per worker in the
steady state only up to a point. If the capital-labor ratio is too high, then consumption per worker

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may decline due to diminishing marginal returns to capital, and the need to divert much of output
to maintaining the capital-labor ratio.
An increase in the saving rate increases long-run living standards, as higher saving allows for
more investment and a larger capital stock. An increase in the population growth rate reduces
long-run living standards, as more output must be used to equip the larger number of new
workers with capital, leaving less output available to increase consumption or capital per worker.
A one-time increase in productivity increases living standards directly, by increasing output, and
indirectly, since by raising incomes it also raises saving and the capital stock. Endogenous growth
theory suggests that the main sources of productivity growth are accumulation of human capital
(the knowledge, skills, and training of individuals) and technological innovation (research and
development, as well as learning by doing). The production function in an endogenous growth
model does not exhibit diminishing marginal productivity of capital. This differs from the
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production function in the Solow model, which has diminishing marginal productivity of capital.
Government policies to promote economic growth include policies to raise the saving rate and
policies to increase productivity. One way to increase the saving rate is to increase the real return
to saving by providing a tax break, as Individual Retirement Accounts did in the United States.
Unfortunately, the response of saving to increases in the real rate of return is small. Another way
to increase the saving rate is to reduce the government budget deficit. However, the theory of
Ricardian equivalence suggests that this will not do much to increase national saving. Note that
an increase in the saving rate will increase the steady-state capital-labor ratio, but will not
increase the long-run rate of economic growth.
One way that government policy can increase productivity is by spending more on the economy’s
infrastructure, which has been neglected over the past two decades in the United States. Another
possibility is to support the creation of human capital by spending more on education and training

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programs, and reducing barriers to entrepreneurial activity. The issue is whether the government
should intervene in the market to do these things, or whether the free market by itself provides an
efficient outcome.
A one-time increase in productivity will increase the steady-state capital-labor ratio but will not
increase the long-run rate of economic growth. To increase the long-run rate of economic growth,
the growth rate of productivity must be permanently increased.
ii) A Temporary Rise in Saving Rate
The savings rate is a measurement of the amount of money, expressed as a percentage or ratio,
that a person deducts from their disposable personal income to set aside as a nest egg or for
retirement.
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In economic terms, saving is a choice to forego some current consumption in favor of increased
future consumption, so the savings rate reflects a person or group's rate of time preference. The
savings rate is also related to the marginal propensity to save.
The savings rate is also influenced by informal institutions, such as how a particular culture
views debt or values material possessions. Cultures oriented
toward consumerism and conspicuous consumption have lower savings rates. In the United
States, consumption spending constitutes approximately 67% to 70% of GDP and the savings
rate is around 7%.23 In China, where the influence of Confucian culture emphasizes temperance,
consumption spending is about 38% of GDP and the saving rate is around 46%. The government
cares about the savings rate since it's an indicator of a nation's health. The savings rate—which
shows personal savings compared with the national savings rate which adds in savings by
business and government—shows trends in savings, which lead to investments. Household
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savings can be a source of borrowing for governments to provide funds for public works and
infrastructure needs. A higher saving rate does not permanently affect the growth rate in the
Solow model. A higher saving rate does result in a higher steady-state capital stock and a
higher level of output. The shift from a lower to a higher steady-state level of output causes a
temporary increase in the growth rate. In some newer theories of growth, a higher saving rate
may permanently raise the rate of economic growth. These newer theories have not been
subjected to rigorous empirical testing, however.
Q.4 Discuss in detail the role of microeconomic and macroeconomic policies regarding
unemployment and inflation.
Microeconomics focuses on the actions of individual agents within the economy, like
households, workers, and businesses; Macroeconomics looks at the economy as a whole. It
focuses on broad issues such as growth of production, the number of unemployed people, the

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inflationary increase in prices, government deficits, and levels of exports and imports.
Microeconomics and macroeconomics are not separate subjects, but rather complementary
perspectives on the overall subject of the economy.
To understand why both microeconomic and macroeconomic perspectives are useful, consider the
problem of studying a biological ecosystem like a lake. One person who sets out to study the lake
might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular
fish or snails; or the trees surrounding the lake. Another person might take an overall view and
instead consider the entire ecosystem of the lake from top to bottom; what eats what, how the
system stays in a rough balance, and what environmental stresses affect this balance. Both
approaches are useful, and both examine the same lake, but the viewpoints are different. In a
similar way, both microeconomics and macroeconomics study the same economy, but each has a
different viewpoint.
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Whether you are looking at lakes or economics, the micro and the macro insights should blend
with each other. In studying a lake, the micro insights about particular plants and animals help to
understand the overall food chain, while the macro insights about the overall food chain help to
explain the environment in which individual plants and animals live.
In economics, the micro decisions of individual businesses are influenced by whether the
macroeconomy is healthy; for example, firms will be more likely to hire workers if the overall
economy is growing. In turn, the performance of the macroeconomy ultimately depends on the
microeconomic decisions made by individual households and businesses.
Microeconomics
What determines how households and individuals spend their budgets? What combination of
goods and services will best fit their needs and wants, given the budget they have to spend? How
do people decide whether to work, and if so, whether to work full time or part time? How do
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people decide how much to save for the future, or whether they should borrow to spend beyond
their current means?
What determines the products, and how many of each, a firm will produce and sell? What
determines what prices a firm will charge? What determines how a firm will produce its
products? What determines how many workers it will hire? How will a firm finance its business?
When will a firm decide to expand, downsize, or even close? In the microeconomic part of this
book, we will learn about the theory of consumer behavior and the theory of the firm.
Macroeconomics
What determines the level of economic activity in a society? In other words, what determines
how many goods and services a nation actually produces? What determines how many jobs are
available in an economy? What determines a nation’s standard of living? What causes the
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economy to speed up or slow down? What causes firms to hire more workers or to lay workers
off? Finally, what causes the economy to grow over the long term?
An economy’s macroeconomic health can be defined by a number of goals: growth in the
standard of living, low unemployment, and low inflation, to name the most important. Monetary
policy, which involves policies that affect bank lending, interest rates, and financial capital
markets, is conducted by a nation’s central bank. For the United States, this is the Federal
Reserve. Fiscal policy, which involves government spending and taxes, is determined by a
nation’s legislative body. For the United States, this is the Congress and the executive branch,
which originates the federal budget. These are the main tools the government has to work with.
The relationship between inflation and unemployment has traditionally been an inverse
correlation. However, this relationship is more complicated than it appears at first glance, and it
has broken down on a number of occasions over the past 50 years.1 Since inflation and
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employment (and unemployment) are some of the most closely monitored economic indicators,
we'll delve into their relationship and how they affect the overall economy. The inverse
correlation between inflation and unemployment depicted in the Phillips Curve works well in the
short run, especially when inflation is fairly constant as it was in the 1960s. It does not hold up
over the long-term since the economy reverts to the natural rate of unemployment as it adjusts to
any rate of inflation.
Because it's also more complicated than it appears at first glance, the relationship between
inflation and unemployment has broken down in periods like the stagflationary 1970s and the
booming 1990s.
In recent years, the economy has experienced low unemployment, low inflation, and negligible
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However, the Federal Reserve is currently engaged in tightening monetary policy or hiking
interest rates to combat the potential of inflation We have yet to see how these policy moves
will have an impact on the economy, wages, and prices.
Q.5 Write notes on the followings:
i) Cost Push Inflation
Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase
(inflation) due to increases in the cost of wages and raw materials. Higher costs of production
can decrease the aggregate supply (the amount of total production) in the economy. Since the
demand for goods hasn't changed, the price increases from production are passed onto consumers
creating cost-push inflation. Inflation is a measure of the rate of price increases in an economy
for a basket of selected goods and services. Inflation can erode a consumer's purchasing power if
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wages haven't increased enough or kept up with rising prices. If a company's production costs
rise, the company's executive management might try to pass the additional costs onto consumers
by raising the prices for their products. If the company doesn't raise prices, while production
costs increase, the company's profits will decrease.
The most common cause of cost-push inflation starts with an increase in the cost of production,
which may be expected or unexpected. For example, the cost of raw materials or inventory used
in production might increase, leading to higher costs.
For cost-push inflation to take place, demand for the affected product must remain constant
during the time the production cost changes are occurring. To compensate for the increased cost
of production, producers raise the price to the consumer to maintain profit levels while keeping
pace with expected demand.
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an increase in the cost of input goods used in manufacturing, such as raw materials. For example,
if companies use copper in the manufacturing process and the price of the metal suddenly rises,
companies might pass those increased costs on to their customers.
Increased labor costs can create cost-push inflation such as when mandatory wage increases for
production employees due to an increase in the minimum wage per worker. A worker strike due
to stalled contract negotiations might also lead to a decline in production; and as a result, lead to
higher prices.
Unexpected causes of cost-push inflation are often natural disasters, which can include floods,
earthquakes, fires, or tornadoes. If a large disaster causes unexpected damage to a production
facility and results in a shutdown or partial disruption of the production chain, higher production
costs are likely to follow. A company might have no choice but to increase prices to help recoup
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some of the losses from a disaster. Although not all natural disasters result in higher production
costs and therefore, wouldn't lead to cost-push inflation.
Other events might qualify if they lead to higher production costs, such as a sudden change in
government that affects the country’s ability to maintain its previous output. However,
government-induced increases in production costs are more often seen in developing nations.
Government regulations and changes in current laws, although usually anticipated, may cause
costs to rise for businesses because they have no way to compensate for the increased costs
associated with them. For example, the government might mandate that healthcare be provided,
driving up the cost of employees or labor.
ii) Equilibrium Rate of Growth
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In macroeconomics, the balanced-growth path of a dynamic model is a trajectory such that all
variables grow at a constant rate. In the standard exogenous growth model, balanced growth is a
basic assumption, while other variables like the capital stock, real GDP, and output per worker
are growing. Developing economies may adopt a strategy of unbalanced growth to rectify
previous investment decisions, as put forward by economist Albert O. Hirschman.
In microbiology, the state of balanced-growth means "every extensive property of the growing
system increases by the same factor over a time interval".[1] It is ideal for performing experiments
because all bacteria are at about the same state (as opposed to stationary phase, for example,
where some cells are alive and others are dead). Machines like chemostats can be used to culture
bacteria and keep them in a state of balanced-growth for long-term experiments.
Balance Growth refers to a specific type of economic growth that is sustainable in the long term.
Balance Growth is opposed to the boom and bust nature of economic cycles.
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According to Alak Ghosh, " Planning with balanced growth indicates that all sectors of the
economy will expand in same proportion, so that consumption, investment and income will grow
at the same rates. It stresses that the balanced growth can occur when the growth rates of the
consumption, investment and income are equal to each other".
Equilibrium is a concept borrowed from the physical sciences, by economists who conceive of
economic processes as analogous to physical phenomena such as velocity, friction, heat, or fluid
pressure. When physical forces are balanced in a system, no further change occurs.
For example, consider a balloon. To inflate a balloon, you blow air into it, increasing the air
pressure in the balloon by forcing air in. The air pressure in the balloon rises above the air
pressure outside the balloon; the pressures are not balanced. As a result the balloon expands,
lowering the internal pressure until it equals the air pressure outside. Once the balloon expands
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enough so that the air pressure inside and out are in balance, it stops expanding; it has reached
equilibrium.
In economics we can think about something similar with regard to market prices, supply, and
demand. If the price in a given market is too low, then the quantity that buyers demand will be
more than the quantity that sellers are willing to offer. Like the air pressures in and around the
balloon, supply and demand will not be in balance. consequently a condition of oversupply in the
market, a state of market disequilibrium.
So something has to give; buyers will have to offer higher prices to induce sellers to part with
their goods. As they do, the market price will rise toward the level where the quantity demanded
equals the quantity supplied, just as a balloon will expand until the pressures equalize.
Eventually it may reach a balance where quantity demanded just equals quantity supplied, and
we can call this the market equilibrium.
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In microeconomics, economic equilibrium may also be defined as the price at which supply
equals demand for a product, in other words where the hypothetical supply and demand curves
intersect. If this refers to a market for a single good, service, or factor of production it can also be
referred to as partial equilibrium, as opposed to general equilibrium, which refers to a state where
all final good, service, and factor markets are in equilibrium themselves and with each other
simultaneously. Equilibrium can also refer to a similar state in macroeconomics, where aggregate
supply and aggregate demand are in balance. Equilibrium is a fundamentally theoretical
construct that may never actually occur in an economy, because the conditions underlying supply
and demand are often dynamic and uncertain. The state of all relevant economic variables
changes constantly. Actually reaching economic equilibrium is something like a monkey
hitting a dartboard by throwing a dart of random and unpredictably changing size and shape at a

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dartboard, with both the dartboard and the thrower careening around independently on a roller
rink. The economy chases after equilibrium with out every actually reaching it.
With enough practice, the monkey can get pretty close though. Entrepreneurs compete
throughout the economy, using their judgment to make educated guesses as to the best
combinations of goods, prices, and quantities to buy and sell. Because a market economy
rewards those who guess better, through the mechanism of profits, entrepreneurs are in effect
rewarded for moving the economy toward equilibrium.
The business and financial media, price circulars and advertising, consumer and market
researchers, and the advancement of information technology all make information about the
relevant economic conditions of supply and demand more available to entrepreneurs over time.
This combination of market incentives that select for better guesses about economic conditions
and the increasing availability of better economic information to educate those guesses
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accelerates the economy toward the “correct” equilibrium values of prices and quantities for all
the various goods and services that are produced, bought, and sold.
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