Question

3. Suppose that velocity of money and output are . Gulf constant and the fresher effect both hold what happens to inflation real interest rate and nominal interest rate when the money supply growth rate increases from (096) to (5%)? 4. Why might a favorable change to the economy such as technological change or a decrease in the price of imported oil be associated with an increase frictional unemployment? 5. How young population effect economic development? 6. Explain the difference between equity finance and debt finance with example 7. Explain the difference between financial market and financial intermediary? 8. Explain how inflation affects savings?

short answer required

Answer 1

Since there are many questions i am typing the answer

Answer:

(3)  inflation real interest rate and nominal interest rate when the money supply growth rate increases from (0%) to (5%):

Given the information that money supply growth rate increases from 0% to 5%

Inflation would increase. Because given the supply for goods and services, increase in the money supply will lead to an increase in the demand for goods and services.

As a result, the prices would tend to go up. Since the velocity of money and output are not given, it is not possible to calculate the increase in price level.

Nominal interest rate is expected to decrease because increase in money supply implies that banks have more funds to lend; they have more liquidity.

Therefore, they may charge a lower interest rate.

On the other hand, from the demand side perspective, increase in money supply for given money demand, would imply that people have extra funds to invest in financial instruments.

As a result, there will be a greater demand for financial instruments like stocks and bonds; their prices will go up and hence, interest rate will go down.

If nominal interest goes down and inflation goes up, then real interest rate expressed as the difference between the two is expected to fall.

(4). favorable change to the economy such as technological change or a decrease in the price of imported oil be associated with an increase in frictional unemployment:

Frictional unemployment, also sometimes termed as search unemployment occurs when workers are jobless and searching for employment in a healthy economy.

A positive technological change to an economy may make few industries decline and others advance, thus leading to a frictional unemployment.

In the similar way a fall in the price of imported oil may decrease the demand for U.S. oil workers and raise the demand for automobile workers, creating frictional unemployment.

(5)young population effect economic development:

It has both positive and negative effect.

Young population means that growth rate of population is high which decreases capital per worker and puts strains on infrastructure, resources and finances.

Hence it is a liability for growth and discourages growth

But quite often young people are considered demographic Dividend.

They acquire new skills, knowledge etc and serve as vital consumer market.

They also provide cheap labor. All these lead to greater growth

(6) difference between equity finance and debt finance with example:

Equity financing means selling company's stock and increasing owner's equity of a sole proprietorship .

For example ,

an entrepreneur starting a start up worth $60,000,000 and have all the shares of the company , later if he need to acquire an asset he can sell some of his stock to the willing investor and can buy that asset.

Debt financing means borrowing money in order to acquire an asset , this doesn't involve proprietorship.

For example ,

if the same entrepreneur doesn't want to sell shares of his company he can borrow money from the market to acquire an asset .

(7).difference between financial market and financial intermediary:

Financial markets is a channel; of providing buying and selling facilities of stocks , bonds , securities etc

For ex: NSE BSE

Financial intermediary acts as a mediator between lenders- savers and borrowers-spenders that is it transfers surplus funds from savers to the ones who need these funds for further profitable investments .

For ex: Banks

(8) inflation affects savings:

Inflation means average price in an economy goes up .

So when inflation is present in an economy it eventually lowers our purchasing power and hence affect saving rate , with the same saving an individual will get lesser goods .

Therefore savings will decrease .