15.

The difference between a demand curve and supply curve is that a demand curve is
downward sloping, because as price increases, demand decrease.
A supply curve is upward sloping because as market price rises, companies have more
incentive to sell more... higher price, higher supply.
-Demand Curve:
E

-supply curve

 At some price, the quantity supplied equals the quantity demanded. That is Equilibrium point

16. The full name of IS-LM :

(IS) mean: "Investmentsaving" and (LM) mean: "liquidity preferencemoney supply"
The ISLM model, or HicksHansen model is a macroeconomic model that graphically
represents two intersecting curves. The investment/saving (IS) curve is a variation of the incomeexpenditure model incorporating market interest rates (demand), while the liquidity
preference/money supply equilibrium (LM) curve represents the amount of money available for
investing (supply).
-The IS Curve

The IS curve tells you all combinations of Y and r that equilibrate the output market, given that
firms are willing to supply any amount thats demanded. That is, the IS is the set of all Y
and r combinations that satisfy the output market equilibrium condition that total demand given
income Y and the cost of borrowing r must equal total supply:
Yd(Y, r) = Y.
(Yd) can be broken up into the sum of consumption demand, investment demand, government
demand, and net foreign demand:
Yd (Y, r) = Cd + Id + Gd +NXd

-The LM Curve

The LM curve tells you all combinations of Y and r that equilibrate the money market, given the
economys nominal money supply M and price level P. That is, the LM curve is the set of all Y

and r combinations that satisfy the money market equilibrium condition, real money demand
must equal the given real money supply:
Md(Y,r) =M/P

The intersection of the IS and LM curves represents equilibrium on the goods and assets
markets.

17. If the world is developed, it can help the developing countries like Cambodia via Financial
globalization. Actually, financial globalization could, in principle, help to raise the growth rate in
developing countries like Cambodia through a number of channels. Some of these directly affect

the determinants of economic growth (augmentation of domestic savings, reduction in the cost of
capital, transfer of technology from advanced to developing countries, and development of
domestic financial sectors). Indirect channels, which in some cases could be even more
important than the direct ones, include increased production specialization owing to better risk
management, and improvements in both macroeconomic policies and institutions induced by the
competitive pressures or the "discipline effect" of globalization.
12. A countrys gross national product(GNP) is equal to the income received by its factors of
production. The national income accounts divide national income according to the types of
spending that generate it: consumption, investment, government purchases, and the current
account balance.
Gross Domestic Product (GDP), equal to GNP less net receipts of factor income from abroad,
measures the output produced within a countrys territorial borders.
So in order to boost the Gross National Product (GNP) or Gross Domestic Product (GDP),
we have to increase one or more of its components such as Consumption, investment,
government purchases and the current account balance.
The components of GDP in an Open Economy:
-C: Private Consumption: Purchases by private sector for current wants: Durable and
Nondurable goods.

- I: investment: Current output used to increase the domestic capital stock and produce more
output in the future, that is, business investment in equipments. It excludes exchanges of existing
assets.

- G: Government Spending : The sum of government expenditures on final goods and services.
It does not include any transfer payments, such as social security or unemployment benefits.
- Net Export: EX IM or NX = Exports Imports or Current Account (CA):. This includes
exports and imports of merchandise, factor services and other services
GDP= C + I + G + NX
14. There are some important factors that govern the movement of interest rates. Potential borrowers
need to track these factors to get an idea on the possible movement of interest rates.
-Economy
The general economic conditions are among the prime factors that influence the movement of interest
rates. In a growing economy, people have secure sources of earnings and hence high confidence levels
to borrow and buy. For example, people go in for a house, car, consumer appliances etc. This increases
the demand for funds. Hence, it influences the rate of interest in an upward direction. In a recessionary
economic condition or slowdown, the interest rates tend to go down due to the opposite happening.
-Inflation
The rate of inflation is another important factor that governs interest rates on loans. The lenders prefer
lending at interest rates that are higher than the rate of inflation. Otherwise, they will post a negative
growth in absolute terms. Therefore, a rise in the rate of inflation signals a higher interest rate regime. On
the other hand, a drop in the rate of inflation indicates a softer interest rate regime.
-RBI moves
The RBI governs the monetary policy. It controls the monetary activities such as money supply, liquidity,
and interest rates through its key policy rates - repo rate and reverse repo rate, and ratios - cash reserve
ratio (CRR) and statutory liquidity ratio (SLR). The RBI's key policy rates act as a benchmark for the

interest rates. Similarly, the policy ratios act as controls for the liquidity in the system. The RBI keeps
tuning these parameters based on the economic conditions from time to time.
-Stock market conditions
Corporates meet their needs of funds through equity expansions in the stock markets or borrowings from
financial institutions. Bullish trends in the stock markets prompt companies to go in for the equity
expansion route. This reduces the demand for funds through borrowing. On the other hand, a sluggish
stock market condition induces corporates to go in for the borrowing route, and thus increases the
demand for funds.
-International borrowings
With the increasing globalisation over last few years, the economic conditions of international markets
have also started playing an important role in deciding the interest rate direction. The global economic
conditions influence the lending pattern of foreign investors to domestic companies, and thus compete
with domestic sources of funds in the market.
-Fiscal deficit and government borrowings
The government policies and their impact on the fiscal deficit is another factor that influences the interest
rates indirectly. The government borrows money from the market to fund its fiscal deficit. A rising fiscal
deficit (as percentage of the GDP) indicates that the government will have to borrow more from the
market. This puts an indirect upward pressure on the borrowing rates in the market.

The interest rate is determined by the Central Bank. For example, In the United States interest rates

are determined by the Federal Reserve or the Fed. Interest rate plays an important role in
determining the volume of investment, export and import in a country.

There is negative relationship between interest rate and investments means that as interest
rate falls investment rises. And the opposite is true when interest rate rises. Real interest rate
helps to determine the trend of investment in an economy. When the interest rates are high,
borrowing becomes quite expensive for the investors so they make less real investment. The
high interest rates make it difficult to cover their expenditure because their products becomes
less competitive in both the domestic and international market.

There is a negative relationship between interest rate and export. For example, a lower interest
rate is caused by an increase in the money supply, and what these both cause is inflation. When
inflation occurs, the dollar is devalued. Because of this, foreigners can buy our products cheaper
(they're currency has gone up compared to ours) so Export will increase.

There is a positive relationship between interest rate and import. For example, our dollar is
weaker compared to other currencies so it will be more expensive to buy foreign products so
Import will decrease.

9. The Pros and Cons of ASEAN and WTO membership to Cambodian Economy:

Positive effects:

o Increasing trade and investment

o Achieve the improvement of GDP per capita and economic welfare
o Promote and boost development of the services sector
o Decreasing Preferential Tariffs
o Improve resource allocation within the region
o Facilitates specialization, lower cost inputs
o Lower price of products
o Increase opportunities for business to expand market
o Increase job opportunities (decrease unemployment)
o Reduce dependence on their traditional trading partners

Negative Effects
o Common External Tariff (reduce gov budget revenue)
o Domestic economic instability
o Increasing competition for domestic industries
o Benefit distributed unevenly throughout region
o Decline competitiveness of traditional export industries