Study guide - short answer Assignment Example | Topics and Well Written Essays - 750 words

Study unravel - short answer - Assignment ExamplePrices play a significant role in influencing flash/deflation and setting up demand and supply. There is minimal or no government intervention in free market economies. The forces of demand and supply determine how much should be produced and establish the income distribution curve. The damage mechanism in a free market economy represents a rhythm method of birth control of real income from wipe outrs to producers and back.For representative if the government prints out bills to pay war contractors, the prices of equipments used in war will increase. The money incomes of the war contractors and their employees will significantly increase. The increase in their spending power will induce them to consume more(prenominal) commodities. The sellers will be compelled to increase their prices to match the increased demand. The war contractors and employees will be unbidden to spend their money income to pay for the higher prices rathe r than do without the commodities. Increased money incomes mean that a dollar will have a lower subjective value.Illustration Let the war contractors and employees be, W, and those who immediately supply the commodities to them be, X. Group X will increase its purchases from its wholesalers (Y). Group Y will have more income to purchase more commodities from the producers (Z). The cycle is continuous such that the increase in money incomes and prices covers the whole nation. When the cycle is complete, almost everyone will indicate higher incomes in terms of