macro

[s]

1.an increase in nominal money supply will shift the aggregate demand curve in the following manner:

a. AD shifts in the right by same distance at different price levels
b. the rightward shift will be smaller the lower is the price level
c. the rightward shift will be smaller the higher is the price level
d. AD shifts to left

i cannot understand the economic logic behind this,it is a rightward shift al right but how do we know what kind of rightward shift it is

2. the equation I=S+T-G-NX suggests dat if there is an increase in govt budget deficit with domestic savings constnt then thr must be
a. increase in foreign savings flowing into country in order to maintainthe level of investment
b. level of inv must increase in ordr to pay for increase inthe deficit
c. the level of exports must rise and level of imports must fall in order to maintain the level of inv
d. govt saving will increase

[tim]

i think rightward shift will be smaller...bcos some part of inc in money supply will be consumed and some part of it will b saved...so it willl b smaller

[Chinni18]

Shifts in AD are affected by real balances, i.e. M/P
So if M goes up (nominal money supply) and P goes up by smaller amount, then real balances will have increased, but by less than the nominal money supply. Therefore AD shifts right, but by a smaller amount. This is in the classical case of perfect foresight.

[s]

ohh yeah!! classical bit didnt occur to me ..thanks :)

[Chinni18]

 Happy to help!

[divyas]

for the second part im getting a) as the ans.

[lovekesh]

even i am getting A.
I+G+NX = S+T
I+ budget deficit + NX = Saving
if savings are costant, then NX must go down or imports should rise to keep investment arte at original level.
Even with govt purchases, national savings go down, so to keep investment at original level, foreign savings are required.

[s]

@ divyas from the classical model perspective we know that the aggregate demand schedule will look like Y=Ms/kP ...k=inverse of velocity of circulation...so now a rise in Ms and its affect on Y can be understood by looking at DelY/DelMs=1/kP which is smaller with high values of P

[divyas]

thanks for the explaination s
wich means the ans. to Q.1. is option C