Chapter 6 complete

financial assets (financial assets or claims are generally subdivided into two heads of 
primary or direct securities and secondary or indirect securities. The former are financial 
claims against real sector units such as bills, bonds, and equities. They are created by real 
sector units as ultimate borrowers for raising funds to finance their deficit spending. The 
secondary securities are financial claims issued by financial institutions or intermediaries 
against themselves to raise funds from the public. For examples the Reserve bank currencies, 
bank deposit, and life insurance policies etc.
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. The increased demand for financial assets 
pushes down the rate of interest on those asserts and thereby increases planned investment 
spending. This leads to temporarily increase in output and employment. As firms attempts to 
purchase more labour and other factors of production; prices of inputs increases. 
Consequently, increase in prices of input leads to a rise in output prices – inflation. the 
economy reaches long-run equilibrium when MV = PY (see equation 6.21 and 6.22) at the 
original level of real national income. The rise in M ultimately leads only to a rise in P.