macroeconomics

A detailed Summary of macroeconomics


1) At first we choose a point in quadrant I. Let us call this point as "B".

Now let us look at the Y (national income) and I (interest rate) at point B and compare it with point "C".

Same Y1*Y2

As we see from the diagram, the national income at point C is greater than the national income at point B. We also know that money demand is positively correlated with national income and negatively correlated with the interest rates. In other words;

Md,p=f(Y+) (1) so we can say that Md=f(Y+,i-) (2)

At point C the national income is higher then the national income at point B;so we can easily say that money demand at point C is greater than money demand at point B. The money supply stays at the same level but the demand for money decreased. In this case we have excess supply in money market.

As it is seen from the drawing above, the national income at point B is same as the national income at point D. But the interest rate at point B is greater


This shows us aggregate demand*aggregate supply . So we have excess demand in money market.

In this case we have the same interest rate at both points. This means we have the same amount of savings or in other words we have the same amount of money supply at both points. The national income at point L is greater than the national income at point K. From equations (1) and (2), we know that money demand at point L is greater than money demand at point K.



Some common words found in the essay are:
Mdt=fY+ Mdp=fY+, national income, Y2 Y1*Y2, money demand, money market, excess demand, , excess supply, demand money, supply excess, income national, income national income, national income national, Excess Demand, money demand money, money market market, supply excess demand, market market, Excess Supply, equations 1, Supply Excess, Demand Excess,

Approximate Word count = 1055
Approximate Pages = 4 (250 words per page double spaced)

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