National Income And The Level Of Real Output, The Price Level And Employment
Economics notes
National Income And The Level Of Real Output, The Price Level And Employment
➡️ Expansionary monetary policy involves increasing the money supply, lowering interest rates, and increasing aggregate demand. This leads to an increase in real GDP and a rise in the price level, resulting in a rightward shift of the aggregate demand curve and an increase in the equilibrium price level and real GDP.
➡️ Contractionary monetary policy involves decreasing the money supply, raising interest rates, and decreasing aggregate demand. This leads to a decrease in real GDP and a fall in the price level, resulting in a leftward shift of the aggregate demand curve and a decrease in the equilibrium price level and real GDP.
➡️ AD/AS analysis can be used to illustrate the impact of expansionary and contractionary monetary policy on the equilibrium. Expansionary policy leads to an increase in the equilibrium price level and real GDP, while contractionary policy leads to a decrease in the equilibrium price level and real GDP.
How does an increase in national income affect the level of real output?
An increase in national income will lead to an increase in the level of real output. This is because when national income increases, businesses have more money to invest in production, which leads to an increase in the production of goods and services. This, in turn, leads to an increase in the level of real output.
How does an increase in the price level affect employment?
An increase in the price level can have a negative effect on employment. This is because when prices increase, businesses may not be able to afford to hire as many workers, leading to a decrease in employment. Additionally, when prices increase, consumers may not be able to afford to purchase as many goods and services, leading to a decrease in demand for labor.
How does an increase in employment affect the price level?
An increase in employment can lead to an increase in the price level. This is because when more people are employed, they have more money to spend, which leads to an increase in demand for goods and services. This, in turn, leads to an increase in prices.