Directions:
(a) Describe economic terms and concepts in question.
(b) Describe your reasoning...

Question

Directions: 
(a) Describe economic terms and concepts in question.
(b) Describe your reasoning leading from concepts in question to the final answer.
(c) Write full sentences and use double spacing between paragraphs.
(d) Edit your work for sentence structure, spelling and appropriate formatting of paragraphs.
	
Document Preview: Directions: (a) Describe economic terms and concepts in question.(b) Describe your reasoning leading from concepts in question to the final answer.(c) Write full sentences and use double spacing between paragraphs.(d) Edit your work for sentence structure, spelling and appropriate formatting of paragraphs.What are government’s fiscal policy options for ending severe demand-pull inflation? Which of these fiscal options do you think might be favored by a person who wants to preserve the size of government? A person who thinks the public sector is to large? How does the “ratchet effect” affect anti-inflationary fiscal policy?What is the basic determinant of (a) the transactions demand and (b) the asset demand for money? Explain how these two demands can be combined graphically to determine total money demand. How is the equilibrium interest rate in the money market determined? Use a graph to show the effect of an increase in the total demand for money on the equilibrium interest rate (no change in money supply). Use your general knowledge of equilibrium prices to explain why the previous interest rate is no longer sustainable.Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quotas for the world economy?Explain why the U.S. demand for Mexican pesos is downsloaping and the supply of pesos to Americans is upsloping. Assuming a system of flexible exchange rates between Mexico and the United States, indicate wheter each of the following would casue the Mexican peso to appreciate or depreciate, other things equal:The United States unilaterally reduces tariffs on Mexican producsts.Mexico encounters severe inflation.Deteriorating political relaitons reduce American tourism in Mexico.The U.S. economy moves into a severe recession.The United States engages in a high-interest-rate monetary policy.Mexican products become more fashionable to U.S....

David · Accepted Answer

Answer1)
Demand-pull inflation in general is called "too much money chasing too few goods". It is said to exist in an economy when its aggregate demand outpaces its aggregate supply. It involves a rapid increase in overall price level with simultaneous fall in unemployment and increase in real gross domestic product. 
A reduction in the amount of government spending, increase in tax rates or some combination of both can be used by government for ending severe demand-pull inflation. A person wanting to guard or defend the size of the government will favor a tax hike in contrast to reducing government spending programs as a tax hike will not influence the government investment made in different parts of the economy. A person who thinks that the public sector is too will favor cuts in government spending which will reduce the role of government investment in various economic activities ultimately, reducing the size of government. A ratchet effect is defined as tendency of people to be influenced by the previous highest level of a factor. Since, anti-inflationary fiscal policy are aimed to control the rapid increase in price level ratchet effect implies that prices are rigid downward.
Answer 2) 
Transactions demand of money is referred to as the money hold by people to finance day to day transaction in other words, to erase the gap between payments and receipts in daily business operations. The transactions demand for money is positively related with the amount of real income. The basic determinant of transactions demand for money is level of nominal GDP.  The higher this level, the greater the amount of money demanded for transactions. Asset demand for money is also known as speculative demand for money, it referred to the amount of money people want to hold as a store of value.
Since, interest rate is the opportunity cost of holding money it is considered to be the basic determinant of asset demand for money. Asset demand for money varies inversely with the interest rate. The higher the interest rate, the smaller the amount of money demanded as an asset.
The demand curve transaction demand for money and the demand curve for asset demand for money can be summed horizontally to get the total demand for money.

Directions: (a) Describe economic terms and concepts in question. (b) Describe your reasoning leading from concepts in question to the final answer. (c) Write full sentences and use double spacing...

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