Question

1. How the AD/AS Model incorporation Growth, Unemployment, and inflation.

2. What causes changes in unemployment over the short run?

3. How a central bank excutes monetary policy?

4. What is rule of law with examples

Answer 1

The aggregate demand represents the total consumption and total investment in the economy. Aggregate supply shows the presence of the total production in the economy and aggregate supply also represents the total supply of all the sectors in the economy. Therefore when the aggregate demand is equal to aggregate supply then the problem of unemployment starts decreasing and when aggregate supply increases in the economy then it means that economy is growing well.

The concept of inflation is also explained with the help of aggregate demand and aggregate supply. When aggregate supply is constant and aggregate demand is shaped upwards then the gap between actual aggregate demand and the aggregate demand acquired at the full employment equilibrium level shows the inflationary situation.

There are various factors which causes the changes in the unemployment in the short run because unemployment is a situation when all the resources are not widely employed. In the case of Human Resource unemployment, it is a situation where humans are ready to work but the work is not available in the market.

Therefore in the short run if there is less demand in the economy then the situation of unemployment arises so, it is necessary to cover up all the things as per the available supply in the economy. The other factors are also very important which causes the case of unemployment in the economy.

The central bank uses the monetary policy tools for the control of inflation and deflation in the economy. Monetary policy includes quantitative measures and the qualitative measures. Most important are the quantitative measures, because they include various important tools like bank rate, cash reserve ratio, statutory liquidity ratio and all the resources of open market operations. These tools are very important in the monetary policy because with the help of these tools central bank is able to control the inflationary and deflationary situation in the economy.

Rule of law, is a situation which defines what are the conditions of loss which is essentially followed by all the humans in the economy because, the law rule suggests the tools and tones in the economy. Therefore it is very important to work according to the rule of law. The best example of rule of law in an organisation is that when the organisation is laid down by some rules and the organisational laws, then all the employees are bound to follow these rules otherwise organisation take it as the abandoned rules from the side of employees. Therefore it is very important to work according to the law.