You are given a Simple Closed Economy with ONE GOOD and ONE CURRENCY with an initial...
You are given a Simple Closed Economy with ONE GOOD and ONE CURRENCY with an initial (year 1) annual GDP of 10,000 goods and a STATIC money supply of 10,000 units of currency.
What would you expect to happen to the price level and production of goods in this closed economy over time (10 years)?
Explain your answer and show your supporting calculations.
please answer on each part.....
Homework Answers
In a simple closed economy, income and expenditure will be equal.
The economy begins with a set of resources and produces 10,000 units of one good. This is the Real GDP.
Since money supply is static, price level will not change.
Since the economy begins with limited resources, real GDP will also not change. In a closed economy without any leakages or injections, the same pattern will continue.
The only exception here is that if there is drastic growth in the population, factors of production, and technology used.
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