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write these questions not too long with high quality
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write these questions not too long with high quality
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Running head: The Classical Model
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The Classical Model:
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The Classical Model
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1. Write down the Quantity Equation and provide an explanation of all the variables included
in it.
The quantity equation is MV = PT
Where:
M = Money Supply
V = Velocity of Circulation i.e. the number of times money changes hands
P = Average Price Level
T = Volume of Transactions of Goods and Services
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.
According to the quantity theory of money, price level and money supply in an economy are
always in direct proportion to one another i.e. change in money supply results In a proportional
change in price level & vices versa as explained by the quantity equation M*V= P*T. According
to the Quantity Theory of Money, money is neutral to real GDP and the level of employment in
the economy since, a change in stock of money only affects nominal variables in an economy such
as wage, prices &exchange rates but no effect is felt on real variables such as unemployment &
real GDP.
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 o...