I interview my mom, Stephanie Wang through email.
Here are some insights form experts for the interview questions !
1. “Pigou’s wealth effect states that consumers are richer at lower price levels (assuming constant wages). Therefore, I believe that when the price level of an economy falls (or deflation occurs), the real value of money and monetary assets (such as savings) increases. This makes consumers feel richer, even if their money doesn’t change in nominal terms. When consumers feel wealthier, they spend more. Increased spending helps to increase overall demand. When the price level goes down, demand goes up and the demand curve goes down.”
2. “ There are five main factors, which are: Decline in the overall price level, Future price reduction expectations, interest rates caused by changes in the price level, Changes in foreign price levels compared with domestic price levels. A weak domestic currency makes exports more competitive and imports more expensive, thereby increasing net exports and causing a movement down the aggregate demand curve.”
3. “I think the main thing is increased consumer confidence, followed by expansionary fiscal policies such as government spending, tax cuts, and expansionary monetary policies (such as when a central bank like the Federal Reserve increases the money supply or lowers interest rates, borrowing becomes cheaper). Finally, foreign exchange earnings increased. When foreign economies are better, incomes rise, demand rises, causing our exports to rise, causing our demand curve to turn right.”
4. “The long-run aggregate supply (LRAS) curve shifts outwards (to the right) mainly due to an increase in human capital, an increase in the working population, institutional and structural reforms, natural resources, and organizational improvements. The LRAS curve is a vertical line at the level of full-employment output because it assumes that an economy’s long-run output potential is determined by the number of workers in the economy, and when an economy is at full employment, all resources (such as labor and capital) are used most efficiently, meaning that the economy’s long-run productive capacity remains the same. So the LRAS curve is vertical.”
5. “When financial markets are efficient, market prices change rapidly as information changes. Efficient markets are forward-looking. If market participants believe the slowdown is temporary, they will take advantage of lower prices during the slowdown to invest. This proactive behavior can prevent a significant decline in AD, and on the contrary, it can speed up the recovery process.”
6. “‘Animal spirits’ refers to the fact that people’s spirits and emotions can affect the economy. When business is more optimistic, people are more willing to invest, expand production, open new plants, invest in new technology, and hire more people. These investments originated in finance. When people are optimistic, they are more inclined to consume, generating more demand.”
7. “I believe the AD curve may shift to the right due to increased optimism leading to higher consumption and investment.”
8. “If the Federal Reserve raises interest rates significantly, it is likely that the deposit interest rates paid by the public will also increase, although the exact magnitude of the increase would depend on various factors. Simultaneously, the value of existing US Treasury bonds held by the masses would typically decrease as interest rates rise, inversely affecting bond prices.”
9. “When many users start withdrawing money at the same time, a run on the bank occurs. Judging from the current bank asset structure, the sum of deposit reserves and long-term Treasury bonds is much smaller than the number of deposits, so when a run occurs, the bank may go bankrupt because it cannot meet the withdrawal requirements.”
10. “If households in the economy decide to withdraw money from their checking account deposits and hold it as currency, there could be a short-term decrease in the overall money supply in the banking system. This might lead to reduced lending capacity for banks, potentially slowing down economic activity temporarily. Central banks might respond by injecting liquidity into the system to stabilize the money supply and support lending. Means: not change M1 and not change M2”