# Microeconomics

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### Question Description

1. Write down the Quantity Equation and provide an explanation of all the variables included in it.

2. Use the Quantity Equation to explain the Quantity Theory of Money. Also explain why this theory implies that money is neutral to real GDP and the level of employment in the economy.

3. On a graph draw the demand and supply curves for labor. Explain why these curves are shaped the way they are. Also provide an explanation of the forces that push the wage rate to the equilibrium level.

4. At this equilibrium wage rate there is no unemployment in the labor market in the Classical Model. Is this statement accurate?

5. Provide an explanation of what is meant by the term “full employment” in the context of the Classical Model.

6. Using the Quantity Equation, derive the Aggregate Demand curve. Then use the Aggregate Demand – Aggregate Supply framework to depict the equilibrium level of output in the Classical Model? Is this equilibrium level of output equal to the full employment level?

7. Why are expansionary monetary and fiscal policy ineffectiveto combat recession in the world of the Classical Model?

EngDuke1993
School: University of Virginia

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MICROECONOMICS, QUANTITY EQUATION
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MICROECONOMICS, QUANTITY EQUATION

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MICROECONOMICS, QUANTITY EQUATION
QUESTION 1
The quantity equation was developed by Irving Fisher in an attempt to describe the
relationship between aggregate expenditure and money stock (Welfens, 2014). The quantity
relation equation is as illustrated below.
MV=PY
Starting from the right-hand side, P is the price levels while Y is the Real Gross Domestic
Product (GDP). The two variable depict the total spending that takes place in an economy within
a given period of time.
On the left-hand side, M is the money supply and V is the velocity of the monetary measure.
In other words, V depicts the number of times that money changes hands in an economy wit...

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Anonymous
Good stuff. Would use again.

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