Question

PLEASE DRAW 3 DIFFERENT GRAPHS FOR THIS QUESTION. THANK YOU.

**Case 1: Draw the Purchasing Power of Money, the Price/Quantity and the Quantity-of- Loanable Funds graphs for the case of an increasing supply of money and credit.

Answer 1

1)Purchasing power is the amount of goods and services that can be purchased with one unit of money.With increasing money supply there will be too much money chasing few goods and so prices will rise ie there will be inflation. The value of money will fall and less goods will be purchased with the same amount of money.So demand curve will shift to the left.

2)The increase in money supply will lead to increase in consumer spending.So AD will shift to the right.Prices will rise and quantity will increase.

3)An increase in money supply increases the supply of loanable funds.The demand for loanable funds is inversely proportional to the interest rate . Higher interest rate reduce demand for loanable funds.

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