Economic Questions

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Economics

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Please answer each questions in less than 100 words.

  • Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain.
  • Explain how sticky prices relate to the aggregate expenditures model. Why is this important?
  • What is a recessionary expenditure gap? An inflationary expenditure gap? Which is associated with a positive GDP gap? A negative GDP gap?
  • Why are taxes called a leakage? Why is government spending called an injection? Explain why this is important?
  • What is the difference between an asset and a liability on a bank's balance sheet? How does net worth relate to each? Why must a balance sheet always balance? What are the major assets and claims on a commercial bank's balance sheet?
  • Explain why the U.S. banking system is called a "fractional reserve" system. Why does the Federal Reserve require commercial banks to have reserves? What are excess reserves? How do you calculate the amount of excess reserves held by a bank? What is the significance of excess reserves?
  • "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed." Explain how this works?
  • Describe the multiple expansion of loans and money by the entire banking system. Why is this important?

Use Reference: McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (20th ed.). Boston: McGraw-Hill Irwin.

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Explanation & Answer

Attached.

OUTLINE

1. INTRODUCTION
2. BODY
3. CONCLUSION
4. REFERENCES


Running Head: ECONOMICS

Economics Questions
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ECONOMICS
ECONOMIC QUESTIONS
The Concept of Savings and Leakages in the Economy

Savings are amounts in cash diverted from the daily utility of a business operation, because of its
non-consumption state, it is also known as a leakage. The planned investment is also viewed as an
injection because after initiating investment it will increase the overall company revenues thus an
injection (McConnell, Brue, & Flynn, 2009). To ensure that product and spending are at par, and
is coupled with non-existing inventory that is unplanned for then saving must equal planned
investment at equilibrium gross domestic product.
The Relationship between Sticky Price and Aggregate Expenditure Model
The prices of goods and services that are not affected by the fluctuating economic dynamics are
known as sticky pricing; this relates to the ag...


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