Essay on answer of assignment

660 WordsOct 30, 20143 Pages
Group member Name : Huajiu LI Student ID : LIHD1401 Sala uddin Khan KHANSD1302 Assignment Figure 23.2.5 1) Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLF0 and the demand for loanable funds curve is DLF0. An expansion that increases disposable income and expected profit will lead to a higher or lower real interest rate, why? The answer: 1)First of all, other things remaining the same, the greater the expected profit from the new capital, the greater is the amount of the investment and the greater the demand for loanable funds. So an increase in expected profit will shift loanable demand to right . As we can see…show more content…
Compared with the domestic supply, the cost of borrowing from the world will lower. So, this country prefer borrow money from the world supply. In conclusion , the money will flow from the lower interest rate country to the higher interest rate country. 4) Briefly describe money’s function from the view of economists and write down the definition of M1 and M2. The answer: Money’s function: 1) a means of payment: a method of settling a debt. 2)medium of exchange A medium of exchange is an object that is generally accepted in exchange for goods and services. 3) unit of value: an agreed measure for stating the prices of goods and services. 4) store of value: money can be held for a time and later exchanged for goods and services. M1: currency plus chequable deposits held by individuals and business. M2: M1 puls all other deposits - non- chequable deposits and fixed term deposits. 5) How do banks create money multipliers? List the whole process of doing it. The money multiplier is the ratio of the change in the quantity of money to the change in the monetary base( notes,coins and bank’s deposits at the Bank of Canada). The money multiplier depends on the

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