Economics Questions and Answers

Economic agents are entities that make economic decisions. They include households, firms, and the government. The Central Bank, while an important institution, is not considered an economic agent as it does not make decisions about what, how, and for whom to produce. It is responsible for monetary policy and regulating the financial system.

Investment is an activity of spending resources on creating assets that can generate income over a long period of time. It is flow of expenditures developed to projects producing goods which are intended for immediate consumption.

Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If two goods are substitutes, an increase in the price of one will lead to an increase in demand for the other, and vice versa. Therefore, the cross elasticity of demand for substitutes is positive.

Expansionary monetary policy is used to increase the money supply in an economy. When the Central bank buys securities, it aims to expand the volume of money in circulation and where there is too much money in circulation, the CBN will sell securities.

If GDP falls, then people demand less money for transactions. As interest rate rise (fall), the demand for money will fall(rise).