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Decomposition or sources of high-power money

Decomposition or sources of high-power money (H) with the help of the balance sheet identity of the central bank.
High-power money (H) is the currency (notes, coins) produced by the central bank that consists of the currency (C) held by people in their hands or pockets, total cash reserve (R) of BFIs and other deposits of government, government enterprises and foreign offices (OD) with the central bank. i.e H = C + R + OD It is called high-powered money as on the basis of which all BFIs create money in the form of demand deposits (DD) under the credit creation process (CC). There are many sources of (H) that can be decomposed with the help of the balance sheet identity of the central bank i.e Total assets = Total liabilities             ML + NML = FA + OPA             ML = FA – NML + OPA             ML = FA – (NML - OPA)             ML = FA – NNML Where, ML = Monetary liabilities NML = Non-monetary liabilities OPA = other physical assets FA = Financial assets NNML = Net non-monetary liabilities H …

Neo-Keynesian Approach to Inflation: The Phillips Curve

Neo-Keynesian Approach to Inflation: The Phillips Curve

Generally, Neo-Keynesian macroeconomics has the following four propositions.
i.Private sector is unstable ii.Money in the long run is neutral iii.There exists tradeoff between inflation and unemployment iv.Countercyclical policies are preferable to achieve the macroeconomic stability
Phillips (1958), using the data of Great Britain, innovated the Phillips curve which showed the negative relationship between rate of change in money wage and rate of change in unemployment. The original Phillips curve was just the empirical relationship, however, most influential theoretical interpretation steamed from R.G. Lipsey (1960). The Phillips curve appeared empirically plausible and verifiable explanation of continuously rising money wage, a phenomena which the classical labour market could not explain immediately.
The demand for and supply of labour schedules were assumed to be negative and positive function of money wage respectively. Presence …

Micro and macro economics

Interdependence between micro and macro economicsMicro and macro-economics are different in their approaches:
- Micro studies the individual units of the whole economy whereas, Macro deals with the aggregates and sub-aggregates related to the whole economy
- The objective, subjective matter, assumptions etc, of micro economics are different from those macro-economics. But micro and macro are independent.
- The objective of the study of economic can’t be fulfilled by the study of only one, micro and macro.
- They are independent on each other because the parts affect the whole and the whole effects the parts.
- A general economy covers the both micros and macros.
- It should explain prices, output, incomes, behavior of individual firm and industry and the aggregates of the individual variables.   Dependence of micro on macro economics-Micro economics analyzes problem and behavior of small units of the economy. All micro economic variables are fraction of macro-economic variables. -Micro econom…