macroecon short answer

The financial system is important because firms need the financial system to acquire funds. It is essential for economics growth that firms have access to adequate sources of funds because otherwise firms will not be able to invest in capital, adopt new technologies, and expand.

An investment is the action or process of investing money for profit or material result. National savings in a closed economy is investment.

A budget deficit is when the government spends more than it takes from taxes or other forms of revenue. A deficit decreases the quantity of saving and investment and usually increases the interest rate. There is less economic growth.

Agree. Capital investment is a key factor for economic growth. A sound financial system helps to channel saving to firms that need to borrow funds for capital investment.

It would benefit the economy in the long run, but would be counterproductive in the short run. In the short run, the aggregate demand curve would shift left or decrease, which would cause a recession. In the long run, the price level would decrease.

Cutting taxes is bad as the government would get less income and it would be harder for them to pay off their deficit. This will reduce economic growth as the government deficit remains.

Consumption - optimistic; increase in spending Investment - inflation Government Spending - the federal government increases income taxes Net Exports - real income of countries that are kay trading partners increase

A decline in stock prices effects businesses and consumers as it is one of the main sources of income for these people. With consumers confidence lowered, the aggregate demand curve will decrease or shift to the left causing a recession.

The typical long run aggregate supply tells us that the quantity supplied of Real GDP is constant in the long run as the economy operates in full employment and is self regulating.

Higher oil prices would increase the cost of production and cause the short run aggregate supply curves to shift to the left. This supply shock causes lower real GDP and higher inflation. This is difficult to solve with monetary policy as we have both inflation and lower output and changing interest rates cannot solve both.

Recession cannot continue in the long-run. In the long run, the economy operates in full employment and is self regulating. Looking at the long run aggregate supply and demand model, the price level of long run aggregate supply does not change based on what is demanded and stays on the same quality of Real GDP.

If the unemployment rate falls, more people have more money to spend. This causes an increase in aggregate demand which in return would increase inflation.

Money is not the only store of value. Any form of commodity, asset, or money that has value and can be stored and retrieved over time is a store of value. Money must be a store of value in order to engage in the exchange of goods and services.

To say is liquid, means money is able be bought and sold in the market easily and without affecting its value. An asset is also liquid if it can be converted to cash quickly. M1 is more liquid than M2 considering it consists of currency, treasury coins, checkable deposits, travelers checks, and more, that easily allow money to be converted into cash. M2 consists of things like money in certificates of deposits, and money market mutual funds.

A benefit of holding $4,000 as an M1 asset is it would be more liquid and easier to retrieve the $4,000 when needed. If the $4,000 is held as a M2 asset there is possibility earn income on your savings in places like savings accounts and money market funds.

A commodity economy would prevent central banks from printing money and expanding the money supply. A commodity economy would not limit inflation as it causes prices to change violently in the short run due to the balance of trade changing or the physical stock of gold changes.

I agree with this statement because when banks increase their loans, they create new checking account deposits and expand the money supply.

Depositing will reduce the currency drain and will initiate money-creating multiplier effect. Thus M1 will rise more than the initial $2,000. M2 will react the same way considering M1 is a residual as a summation part of M2.

No, you do not. When money is deposited into a commercial bank, a bank reserves as well as the reserves in the banking system increase by the amount of the deposit, bank uses the excess reserves to make loans to households and business, loans are deposited in other banks, deposits in the banking system increase and the money supply M1 increases.

mmediately, all that happens when a cash deposit is made into a checking account is that the components of M1 changes. Immediately, there are $100 of reserves created and there is $100 less currency held. Since the money base is currency plus reserves, there is no change in the money base. Since M1 is currency plus deposits, there is also no immediate change in M1. However, as the bank lends the excess reserves created by the $100 deposit, M1 does increase by the amount of the loan. The money base remains the same.

With focus on economic growth, long term growth is sacrificed for short term growth. Also, keeping rates too low for too long can cause imbalances in the economy,

With a reserve ratio of 100%, the monetary base an money supply are equal, giving the Fed perfect control over the money supply (they can control what banks loan). This would improve the policy by stopping the money creation in the banking sector perfectly. A drawback is that it would be the same as the gold standard which would create a shortage in the money supply worldwide. Banks may stop offering checking accounts leading people to pay more often with cash and banks would not loan out funds.

It is crucial the government is aware of the variations on the natural rate of unemployment considering its goal of high employment. High employment does not mean zero unemployment as that is not necessarily beneficial to the economy, but at the natural rate of unemployment. What changes or effects the frictional or structural unemployment will affect the natural rate of unemployment.

There are many ways the Fed does not have complete control over the nation's money supply. There are some gaps in their policies. Setting bank reserve requirements do not guarantee these reserves will be kept on level as banks can hold excess reserves; money can be forged; currency could be volatile. Financial institutions, like banks, also impact the money supply. For example, if one person deposits money in a bank and that bank lends it out, only the deposit will be recognized, therefore shifting the money supply.

An increase in the interest rate will cause the aggregate demand curve to shift left or decrease. With higher interest rates there is less of a demand for loanable funds.

The goals of monetary policy is to promote a sustainable output/employment and to promote stable prices. The Fed focuses its monetary policy on the interest rate because it is used directly to fight a recession or reduce the inflation rate. If the Fed lowers interest rates, consumption, investment, and net exports increase which fights recession. If the Fed increases interest rates, it decrease the money supply causing inflation to decrease.

If the actual output is below the potential output, then the output gap is positive meaning the economy is in recession. In a recession, the Fed will lower interest rates by lowering the federal funds rates to increase consumption, investment, and net exports.

a