To explain:
The possibility of changing economic factors in short-run.
Explanation of Solution
In short-run, real economic factors can be altered by increasing money supply. Money supply in short-run can be increased by printing money. As money is printed, it will lead to increase in money supply, thereby more funds will be available at lower interest rate. Lower interest rate enhances investment in the economy. Since investment is a part of aggregate demand, an increase in investment leads to increase in aggregate demand.
Therefore, seeing as a component of aggregate demand, when investment increase the aggregate demand increase which leads to reduce the
Money supply:
Money supply is the total amount of cash and term deposits in an economy at a given period of time.
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Chapter 31 Solutions
Principles of Economics (Second Edition)
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning