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Macro-Concepts

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Submitted By andygala18
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Macroeconomics concepts covered:-
1)Monetary Policy Trilema :-
Mundell–Fleming model argues that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It can choose any two for control, and leave third to the market forces.
This is called monetary policy trilema.
2) Devaluation of money & its effects:-
(a) Exports become cheap.
(b) Import become expensive.
(c) Trade deficit decreases.
(d) Balance of trade is achieved.
(e) GDP increases.
3) Quantative easing:-
Quantative Easing is printing of more money to increase the money supply.
It is one of the methods for devaluation of money.
4) GDP & PURCHASING POWER:-
When devaluation happens, then exports increases, then GDP increase, then employment increase, then wages increase, then Purchasing power increases.
5) Inflation :-
Devaluation of currency can cause inflation. This will be explain in the sections ahead.
6) AD curve:- This is explained in the later part of this report.
6) Trade deficit & trade surplus :-
Devaluation of currency has helped China to reduce trade deficit and it has actually increased its trade surplus.
7) Classical dichotomy: - In long run, the change in money supply will result in change in price level.
So, if Exports increases, money supply increases. Hence, price level increases.
8) Okun’s Law, Philip’s curve:-
Increase in exports increased GDP. And because of increase in GDP, the unemployment level in China has decreased. This is given by Okun’s law.
And with the increase in output, the price level have also increased in china. This is given by Philip’s curve.
9) Balassa- Samuelson

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