8 batch

Fisherian Quantity Theory of Money:

Emphasizes the equation of exchange: MV = PT.
Focuses on the quantity of money (M) and its relationship with the price level (P) and volume of
transactions (T).
Ignore the demand for money as a determinant of prices.
Cambridge Quantity Theory of Money:
Incorporates the Cambridge cash-balance equation: Md = kPY.
Consider the demand for money (Md) alongside the money supply (M).
Recognizes that changes in the demand for money can influence the price level, making it more
flexible and adaptable to short-term changes in the economy.

Explain shortly aggregate demand function. How can the production function be affected by
increase in average and marginal productivity of labor for a given output level?

The aggregate demand function shows the total demand for goods and services in an
economy at a given price level and time. It includes consumption, investment,
government spending, and net exports. An increase leads to higher economic activity
and output, while a decrease can lead to lower growth and potential recession.

Effects of Increase in Average and Marginal Productivity of Labor on the Production Function:
Increase in Average Productivity of Labor:
Increasing labor productivity leads to higher output of goods and services.
Technological advancements, better training, and production process organization can
improve productivity. This leads to economic growth and increased production levels.

Increase in Marginal Productivity of Labor:

Marginal productivity of labor is the additional output that one extra unit of labor
contributes to overall production. It increases when resources are utilized more
efficiently or there are technological improvements.

Increasing labor productivity can lead to cost savings for businesses and higher wages
for workers. Fewer workers are needed for the same output level.
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explain the classical theories of labor supply and demand. why is the labor demand
schedule downward sloping when plotted against the real wage, whereas the labor
supply schedule is upward sloping?

Classical Theories of Labor Supply and Demand:

Classical theory suggests that the demand for labor is derived from the demand for
goods and services produced by labor. As real wages increase, the cost of labor for
firms rises, leading them to reduce the quantity of labor demanded to maintain
profitability.

Labor Supply:
The classical theory of labor supply posits that individuals supply more labor as real
wages increase because they are incentivized to work more when they can earn higher
income for their efforts.

Reason for Downward-Sloping Labor Demand Schedule:

The labor demand schedule is downward-sloping because as real wages increase,
firms seek to minimize costs and maximize profits. Higher wages lead to higher labor
costs, and firms respond by reducing the quantity of labor they demand.

Reason for Upward-Sloping Labor Supply Schedule:

The labor supply schedule is upward-sloping because as real wages increase,
individuals are motivated to supply more labor. Higher wages provide stronger
incentives for people to work longer hours or participate in the workforce, leading to a
higher quantity of labor supplied.
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define the term velocity of money. wat factors determine the velocity of money in a
classical system?
The velocity of money refers to the speed at which money changes hands within an
economy during a specific period. It measures how many times a unit of currency is
used in transactions to buy goods and services.

Factors Determining Velocity of Money in a Classical System:

Technological advancements: Efficient payment systems can speed up transactions,
increasing money velocity.
Confidence and stability: Economic stability and confidence encourage spending and
investment, leading to a higher velocity of money.
Interest rates: Higher interest rates can incentivize people to hold less cash and spend
it, increasing money velocity.
Inflation expectations: Expectations of higher future inflation may prompt faster
spending, affecting money velocity.
Taxation and regulations: Tax policies and regulations can influence spending behavior
and, in turn, the velocity of money.
Population and demographics: Population size and age distribution impact consumption
and savings patterns, affecting money velocity.
Monetary policy: Actions by the central bank, like changes in money supply or interest
rates, can influence money velocity.
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explain the expansionary and contractionary (fiscal and monetary) policy effects on
equilibrium levels of aggregate output and interest rate of an economy.

Expansionary fiscal policy increases government spending and taxes, leading to higher
disposable income and demand for goods and services, stimulating economic activity
and increasing aggregate output. It can put upward pressure on interest rates if
increased government borrowing leads to higher demand for loans in the financial
market. Contractionary monetary policy reduces money supply or increases interest
rates to discourage borrowing and spending, lowering aggregate output and GDP. It
decreases interest rates, making borrowing cheaper, stimulating investment and
consumption. It also reduces disposable income, lowers demand, and leads to lower
economic activity. Both policies can lead to lower GDP and interest rates. It is important
to consider the impact of both policies on the economy.
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Expansionary Fiscal Policy:

Effect on Aggregate Output: Expanding government spending and reducing taxes leads
to higher disposable income and demand for goods and services, stimulating economic
activity and increasing aggregate output.
Effect on Interest Rate: Expansionary fiscal policy can put upward pressure on interest
rates if the increased government borrowing to finance the higher spending leads to
higher demand for loans in the financial market.

Contractionary Fiscal Policy:

Effect on Aggregate Output: Contractionary monetary policy involves reducing money
supply or increasing interest rates to discourage borrowing and spending, leading to
lower GDP.
Effect on Interest Rate: Contractionary fiscal policy can put downward pressure on
interest rates if the reduced government borrowing reduces the demand for loans in the
financial market.

Expansionary Monetary Policy:

Effect on Aggregate Output: Contractionary fiscal policy reduces disposable income and
lowers demand for goods and services, leading to lower aggregate output.
Effect on Interest Rate: Expansionary monetary policy leads to a decrease in interest
rates, making borrowing cheaper. This stimulates investment and consumption, leading
to higher economic activity.

Contractionary Monetary Policy:

Effect on Aggregate Output: Contractionary monetary policy involves reducing money
supply or increasing interest rates to discourage borrowing and spending, leading to
lower GDP.
Effect on Interest Rate: Contractionary monetary policy leads to an increase in interest
rates, making borrowing more expensive. This reduces investment and consumption,
leading to lower economic activity.
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what do you mean by mega projects? how does mega project influence major
macroeconomic variables of BD.

A megaproject is a complex, large-scale operation that usually takes

many years to complete.Examples include major highways, airports, dams, and
industrial complexes.

Mega projects influence major macroeconomic variables of Bangladesh in the following

ways:
Economic Growth: Mega projects stimulate economic activity, creating jobs and
boosting GDP.
Investment and Capital Formation: They attract substantial investments and contribute
to capital formation.
Infrastructure Development: Mega projects improve critical infrastructure, enhancing
efficiency and productivity.
Employment Generation: They create jobs for skilled and unskilled labor, reducing
unemployment.
Government Revenue: Successful projects increase tax revenue, supporting public
services.
Foreign Trade and Investment: Mega projects make Bangladesh attractive to foreign
investors and trading partners.
Inflation and Price Levels: Increased demand from projects can lead to inflationary
pressures.
Balance of Payments: Projects may enhance exports and reduce import dependence,
improving the balance of payments.
Regional Development: Projects promote regional economic development and reduce
regional disparities.
Proper planning and management are essential to maximize the benefits of mega
projects and address potential challenges.
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explain shortly the role of fiscal and monetary policy on the implementation of Padma
bridge of BD.
Fiscal Policy for Padma Bridge: The Padma Bridge needs funding through fiscal policy,
bonds, or loans. Increased spending can stimulate economic activity and promote
regional development. The bridge improves connectivity and facilitates movement of
people and goods.

Monetary Policy for Padma Bridge:

The central bank's monetary policy can affect interest rates, inflation control, and
currency stability during construction projects. Lower interest rates can reduce financing
costs, while inflation control can moderate borrowing and spending. Intervention in the
foreign exchange market can maintain currency stability.
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Consumption Function:
The consumption function represents the relationship between disposable income and
consumer spending. It suggests that as income increases, individuals tend to spend
more, but not all of the additional income is spent. The consumption function helps
understand how changes in income impact overall consumer spending in an economy.

Autonomous Expenditure:
Autonomous expenditure refers to the level of spending in an economy that is not
influenced by changes in income. It includes government spending, investment by
businesses, and exports. Autonomous expenditure is considered to be independent of
the level of income and is a crucial component in calculating the equilibrium level of
output in an economy.
Quantity Theory of Money:
The quantity theory of money is a monetary theory that suggests a direct relationship
between the money supply and the general price level in an economy. It is represented
by the equation MV = PT, where M is the money supply, V is the velocity of money (how
fast money changes hands), P is the price level, and T is the total output of goods and
services. The theory posits that changes in the money supply lead to proportional
changes in the price level, assuming velocity and output remain constant.
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