Macroeconomics     

In macroeconomics, the liquidity preference framework describes the effects of inflation expectations and business expansions and recession have on interest rates. The equilibrium of the interest rates is determined by the analysis of the money supply and demand. In this case, the shift that occurs in the demand curve is as a result of price and income level. As the economy continues to grow and income rises, people will tend to use money as store of value, and at the same time, people will want to use more as the medium of exchange. As the level of income continues rising, the demand for money will increase at each interest rate and the demand curve shifts to the right. Similarly, the price level effect indicates that individuals are concerned about the amount of money in real terms. In terms of the goods and services, people care about the prices of the available products and services in case there is an appreciation of cost. In this case, the demand curve shifts to the right due to the increasing demand of money at each interest rate. Correspondingly, the aggregate demand-aggregate supply depicts the economy using the analysis of the change in the demand and aggregate demand curve (Dutt, 2012). The relationship between the quantity of goods and the general price level is presented in the aggregate demand curve. On the other hand, the relationship between the price level and the amount of goods that producers supply in the country is presented in the aggregate supply curve.

The statistics taken for Lalaland shows the inflation, unemployment and the economic growth that has occurred from the year 2016 to 2018. The results show that inflation has continued to increase, the unemployment rate continued to decline, and the economic growth continues to increase since there are more job opportunities. The increase in the money supply and fall in interest rate leads to higher investment and hence resulting in an increase in the employment level.  Additionally, the economic growth will increase due to the increased level of investment as well as the income. The increase in the supply of money in the economy of Lalaland country has led to higher income levels and employment and also an increase in the rate of inflation in the long run.

The statics shows that the country has experienced a long run economic boom as a result of the proliferation in productivity, which results in a rise in the level of employment. Similarly, the level of inflation has continued to rise as the country experience an increase in the economic growth. In the demand curve, the aggregate demand for money will have a progressive to shift to the right even if the country has reached to its potential gross production and full employment and hence pushing the macroeconomic equilibrium into the steep portion of the aggregate supply curve. As a matter of fact, the firms will continue to produce if they demand for their goods is high which will enable them to maximize their profit. An increased demand for the goods produced domestically increases the employment opportunities and also contributes to the economic growth. In this case, the inflation continues to increase with the increase of economic growth since the demand for money is high.

 

 

 

 

 

 

 

Reference

Dutt, A. K. (2012). Aggregate demand-aggregate supply analysis: A history. History of political economy, 34(2), 321-363.