Answer to Question #292052 in Macroeconomics for nisa

Question

a ) Describe TWO (2) causes of inflation.

b) Explain THREE(3) effects of unemployment to economics

c) List FOUR (4) characteristics of money.

d) Keynes’ view of money demand in the economy is affected by three main objectives.

Explain THREE (3) purposes of demand for money according to Keynesian Theory.

A) Explain TWO (2) uses of national income data.

b) Discuss THREE (3) problems in calculating national income .

Answer 1

a) Causes of inflation

• Demand push inflation- This happens when demand for goods and services increases more than the ability of the economy to provide and hence pushing the prices up.
• Cost push inflation- This occurs when supply cost force prices higher.

b) Effects of unemployment in the economy

• Increased poverty- people are not able to earn something to meet their basic needs comfortably.
• Limited labour mobility- People are not able to move freely in the economy to sell their services as the services are not needed.
• Promotion of social unrest and conflict- People result into stealing and since they are not able to secure jobs to cater for their needs.

c) Characteristics of money

• Money is durable
• Money is portable
• It is acceptable as a means of exchange
• It is limited in supply

d) Objectives of demand for money according to Keynes Theory

• Transaction demand- This is the money kept to buy day to day goods and services and depends on the level of income of an individual.
• Precautionary demand- This is the money kept for financial emergencies for example sickness.
• Sepculative demand- This is the money kept for hoping to invest later in money earning investments. For example when interest rates are low people expect them to increase in future for investment.

A) Uses of National income data

• Providing information for making economic policies and budgeting and planning
• Gives information on various sectors of the economy and their contributions.
• Shows the distribution of income in the economy.

B) Problems encountered in calculating national income

• Lack of adequate data to get the ectual figure.
• Problem of double counting of some entries in the economy
• Non- availability of reliable information in the economy