The document summarizes Keynes' reformulation of the quantity theory of money, which brought about a transition from a monetary theory of prices to a monetary theory of output. According to Keynes, an increase in the money supply indirectly affects prices through its impact on interest rates, investment, effective demand, employment and output. As long as there is slack resources (redundancy), prices remain stable despite increases in output and money supply, as productivity and effective demand rise proportionately. Only at full employment will further money supply increases directly lead to price increases in the same proportion. The document supports this with two diagrams.
Classical Long Run Aggregate Supply (LRAS)Hugo OGrady
Classical Long Run Aggregate Supply (LRAS) content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Classical LRAS
The Classical LRAS Curve
Concept of Elasticity
Types of Elasticity
Price Elasticity of Demand
Classification of price elasticity of demand
Determinants of price elasticity of demand
Price Elasticity of Supply
Classification of Price elasticity of supply
Determinants of Price elasticity of supply
Income Elasticity of Demand
Cross Elasticity of Demand
Alfred Marshall
Intro to Aggregate Supply content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Characteristics of AS
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Md. Roxy Hossain
Md. Rehan
Md. Refat Al Asmawl
Jil Jawshon Jababir
Md. Hamim Sarwar
Price elasticity of supply measures the relationship between change in quantity supplied and a change in price.
Basically elasticity of supply shows the amounts that costs rise as production increases
• When Pes > 1, then supply is price elastic
• When Pes < 1, then supply is price inelastic
• When Pes = 0, then supply is perfectly inelastic
• When Pes = infinity, then supply is perfectly elastic following a change in demand
Classical Long Run Aggregate Supply (LRAS)Hugo OGrady
Classical Long Run Aggregate Supply (LRAS) content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Classical LRAS
The Classical LRAS Curve
Concept of Elasticity
Types of Elasticity
Price Elasticity of Demand
Classification of price elasticity of demand
Determinants of price elasticity of demand
Price Elasticity of Supply
Classification of Price elasticity of supply
Determinants of Price elasticity of supply
Income Elasticity of Demand
Cross Elasticity of Demand
Alfred Marshall
Intro to Aggregate Supply content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Characteristics of AS
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Md. Roxy Hossain
Md. Rehan
Md. Refat Al Asmawl
Jil Jawshon Jababir
Md. Hamim Sarwar
Price elasticity of supply measures the relationship between change in quantity supplied and a change in price.
Basically elasticity of supply shows the amounts that costs rise as production increases
• When Pes > 1, then supply is price elastic
• When Pes < 1, then supply is price inelastic
• When Pes = 0, then supply is perfectly inelastic
• When Pes = infinity, then supply is perfectly elastic following a change in demand
MACRO PART 2 Handout Guide (See Handouts for Help)SECTION 9a).docxinfantsuk
MACRO PART 2 Handout Guide (See Handouts for Help)
SECTION 9
a)-d) HO17 P2,3
SECTION 10
a)-c) HO17 P3
d) HO17 P4
e) I did in class
f) HO17 P7
g) HO17 P10
SECTION 11
a) HO18 P2
b) HO18 P5 top
c) HO18 ↓D↑S
d) HO18 ↑D↓S
SECTION 12
a) HO20 P4 top
b) HO21 P4 bottom
c) HO21 P5 top
d) HO21 P5 bottom
e) HO21 P6 top
f) HO21 P7 bottom right
SECTION 13
a) HO22 P6
b) HO22 P7 top
c) HO22 P7 bottom
d) HO23 I showed how in class
e) HO23 P1
f) HO23 P4 bottom
g) HO23 P3 or P4 top depending on what you did in f)
h) HO23 P5 bottom 2 graphs
SECTION 14
a) HO24 P1,2
b) HO24 P10 2 graphs
c) HO24 P12
d) HO24 P2
e) HO24 P3
f) HO24 P4
g) HO24 P6
SECTION 15
a) HO21 P4 bottom
b) HO21 P5 top
c) HO27 P8
d) HO25 P2
e) HO25 P3 only move to the left, not back
f) HO21 P3
g) HO27 P11
SECTION 16
a) HO26 P1
b) HO26 P2
c) HO26 P3 2 graphs
d) HO26 P4 other direction (decrease)
SECTION 17
a) HO27 P3 top 2 paragraphs
b) HO27 P9 top and P11. Also look at HO17 for 3 methods.
c) HO27 P6 and P8. Also look at HO17 for 3 methods.
d) HO27 P5 bottom graph. Ripple pages 8 bottom thru 11
e) HO27 P5 top graph. Ripple pages 6 thru 8
Handout #25P
Inflation
Up, Up and Maybe Away
Inflation is an ongoing process in which there is a broad increase in the price level and money is losing its purchasing value. Changes in the money supply cause changes in the price level. Changes in the price level can be one-time or a persistent rise in the rate at which the price level increases.
Demand-Pull Inflation
A one-time demand induced price increase comes from a outward shift in aggregate demand, such as an increase in the money supply or a component of GDP—C, I, G or NX.
The one-time demand induced increase will lead to an increase in aggregate demand and the economy will be in an inflationary gap—the price level will be higher, real GDP will be higher than Qn and unemployment will be lower than Un. Since the economy is self-regulating, the shortage in the labor market with U < Un will lead to wages being bid up. Higher wages lead to increased costs to producers, which in turn leads to a decrease in SRAS back to Qn. Basically, a demand-induced change leads the self-regulating economy back the full employment level of real GDP, at a higherpricelevel.
Demand-pull inflation rises from continual outward shifts in aggregate demand which are caused by continuous increases in the money supply.
Continual increases in the money supply will lead to continual increases in aggregate demand and the economy will be in repeated inflationary gaps—in repeated cycles, the price level will be higher, real GDP will be higher than Qn and unemployment will be lower than Un. Since the economy is self-regulating, the shortage in the labor market with U < Un will lead to wages being bid up. Higher wages lead to increased costs to producers, which in turn leads to a decrease in SRAS back to Qn. Basically, continuous increases in the money supply leads the self-regulating economy back the full employment le ...
2. Keynes attack against the classical quantity theorists for
keeping separate monetary theory and value theory.
Keynes reformulated quantity theory of money which
brought about transition from a monetary theory of
prices to a monetary theory of output.
Acc. to Keynes the effect of a change in the quantity of
money on prices is indirect and non-proportional.
cont…..
3. All factors of production are in completely elastic
supply as long as there is any redundancy.
All redundant factors are standardized, completely
divisible and exchangeable.
There are invariable returns to scale so that prices do
not hike or drop as productivity hikes.
Effectual demand and volume of money vary in the
same ration so long as there are any redundant
resources.
4. Based on the assumptions, Keynesian chain of origination
admits variations in the volume of money and in prices in an
indirect one through the rate of interest. So when the volume
of money is hiked its first impact is on the rate of interest
which tends to drop. Given the marginal competence of
capital, a drop in the rate of interest will enhance the amount
of investment.
The enhanced investment will hike effective demand through
the multiplier effect thereby hiking earnings, productivity
and employment. As the supply curve of aspects of
production is completely elastic is a circumstance of
redundancy, remuneration and non-remuneration aspects are
accessible at invariable rate of wage.
5. There being invariable returns to scale, prices do not hike
with enhance in productivity as long as there is any
redundancy. Under the stipulation, productivity and
employment will increase in the same ration as effectual
demand and the effectual demand will hike in the same
ration as the quantity of money.
Therefore, as long as there is redundancy, productivity will
vary in the same ration as the volume of money and there
will be no variation in prices and when there is full
employment prices will vary in the same ration as the
volume of money. Thus, the reformulated amount thesis of
money stresses the point that with hike in the volume of
money, prices rise only when the level of full employment
is reached and not before this.
6. Diagram (1) represents that as the volume Diagram (2) represents the correlation
of money enhances from O to M, the level amidst volume of money and prices. As
of productivity also hikes along the OT long as there is redundancy, prices remain
portion of the OTC curve. Since the invariable whatever enhance in the amount
volume of money reaches OM level, full of money. Prices start rising only after the
employment productivity OQF is being full employment level is accomplished. In
produced. But after point T the the diagram, the price level OP stays
productivity curve becomes vertical for invariable at the OM volume of money
the reason that any further enhance in the corresponding to the full employment level
volume of money cannot raise of productivity OQF. But enhance in the
productivity beyond the full employment volume of money above OM raises prices in
level OQF. the same ration as the volume of money.
This is represented by the RC portion of the
price curve PRC.
7. Direct relation.
Stable demand for money.
Nature of money.
Effect of money.