Answer to Question #320953 in Macroeconomics for Amoh

Question

write a short notes of the following (15 marks)

a) aggregate demand curve

b) monetary transmission mechanism

c) natural rate of unemployment

Answer 1

a)An aggregate demand curve shows the inverse connection between the aggregate sums of genuine labor and products (RGDP) that are requested at every conceivable cost level. The total interest bend, as most run of the mill request bends, inclines descending from left to right. Demand increases or decreases along the curve as prices for goods and services either increase or decrease. Also, the curve can shift due to changes in the money supply, or increases and decreases in tax rates.

b) This is the process by which resource costs and general financial circumstances are impacted because of money related strategy choices. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance. Specific channels of monetary transmission operate through the effects that monetary policy has on interest rates, exchange rates, equity and real estate prices, bank lending, and firm balance sheets.

c)The natural rate of unemployment represents the lowest unemployment rate whereby inflation is stable or the unemployment rate that exists with non-accelerating inflation. However, even today many economists disagree as to the particular level of unemployment that should be considered the natural rate of unemployment. Some of the factors that determine the nature of natural rate of unemployment include;

• Availability of job information.
• The level of benefits.
• Skills and education.
• The degree of labor mobility.
• Flexibility of the labor market e.g. powerful trades unions may be able to restrict the supply of labor to certain labor markets.
• Hysteresis.