IGCSE/GCSE/O & A Level/IB/University Student Forum

Qualification => Subject Doubts => GCE AS & A2 Level => Commerce => Topic started by: avin on June 06, 2011, 07:14:45 am

Title: Monetary policy
Post by: avin on June 06, 2011, 07:14:45 am

Can someone please tell me the one that i draw is correct or not? Sorry for the messy handwriting.

It is about contractionary monetary policy.

My questions:
1) Is it wrong if I start and end (before and after the government implement the policy) with the economy is in the full employment?
2) Which one should i talk about first, the LRAS curve or the SRAS curve before i said there are inflation (inflationary gap Ye and Yfel).
3) The one that I draw is correct?

Thanks. It's urgent!!

Title: Re: Monetary policy
Post by: Dasith on June 06, 2011, 12:52:24 pm

yea looks all rite , but i was wondering y u hav put so many curves , specially 2 LRAS , curves , when u could show a inflation situation being corrected by monetary policy. , but i dont knw question for which u r answering so i'm not very sure.

& yea ans 4 the q)

1) it all depends on hw u explain it , if u do it that way & explain it proper no prob
2) hmm , it dosent matter which u talk about first as long as it follows the logical sequance as it happens in the economy .
3) yeaa i guess it is :D

Title: Re: Monetary policy
Post by: ***exam*** on June 06, 2011, 12:52:49 pm

well in ur graph the policy brings the demand down to intersect with lras   but in the 2nd graph the AD with policy dsnt intersect with lras !!!     m confused here !! shld it intersect or not ??

Title: Re: Monetary policy
Post by: Dasith on June 06, 2011, 01:12:49 pm

Quote from: ***exam*** on June 06, 2011, 12:52:49 pm

well in ur graph the policy brings the demand down to intersect with lras   but in the 2nd graph the AD with policy dsnt intersect with lras !!!     m confused here !! shld it intersect or not ??

na no prob with that , if it dosent intersect it just means that the demand is way higher than supply , so it just means higher inflation

Title: Re: Monetary policy
Post by: ***exam*** on June 06, 2011, 01:14:51 pm

ohk !! that means the in the first graph !! inflation is under control  but in the 2nd graph some amt of inflation is still remaining !!   oh i get it Thanks :) :D

Title: Re: Monetary policy
Post by: avin on June 07, 2011, 01:08:07 pm

Thanks Daitsh (hope i do not spelling your name wrongly)

Can i know what usually coma first when we explain the graph that i drew? LRAS or SRAS? Why both of them increased together?

Ya, i need to show there is a inflation then the reserve bank will implement contractionary monetary policy to correct it.