1. Nominal GDP =P*Y, where P is the price level and Y is aggregate output (income) .We know from class slides that the velocity of money links money supply and nominalGDP. Given nominal GDP in a year is $10 trillion and the quantity of money (M1) is$2 trillion, what is the velocity? What is the meaning of this calculated velocity?2. Suppose that real money demand is represented by the equation M“/P= 0.25×Y.Calculate the velocity of money.3. Consider a five year $1000 semiannual coupon bond with a 5% coupon rate. If thebond is current trading for a price of $957.35, what is the bond's yield to maturity? Ifthe bond's yield to maturity increase a little bit, what will the bond's price be?4. Suppose a 7-year, $1,000 bond with an 8% coupon rate and semiannual coupons istrading with a yield to maturity of 6.75%. Is this bond currently trading at a discount,at par, or at a premium? Explain. If the yield to maturity of the bond rises to 7%,what price will the bond trade for?5. Suppose that you want to take a loan and that your local bank wants to charge youan annual real interest rate equal to 3%. Assuming that the annualized expected rateof inflation over the life of the bond is 1%, determine the nominal interest rate thatthe bank will charge you. What happens if, over the life of the loan, actual inflation is0.5%?

GIVEN:Nominal GDP = P*Y = $10 trillionMoney Supply (M1) = $2 trillion

Answered: 1. Nominal GDP =P*Y, where P is the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that velocity of money is constant, the expected inflation rate is always equal to the actual inflation rate, and the expected real interest rate is 3%. Answer the following questions. Justify your answers. -When the growth rate of the money supply is 8% and the growth rate of real GDP is 2%, what is the nominal interest rate?
The velocity of money in the small Republic of Sloagia is always the same. Last year, the money supply was $5 billion and real GDP was $ 20 billion. This year, the money supply increased by 5 percent, real GDP by 4.5 percent, and nominal GDP is $ 19 billion. Calculate the velocity of money The price level last year= The Price level this year = The Inflation rate=
Suppose an economy has a price index at 19, real GDP of $11.83 trillion, and a money supply (M2) of $21.79 trillion. What is the M2 velocity of money for this economy? Round this to two digits after the decimal.
Suppose a country's nominal GDP is $120 billion. The money supply is $100 billion. What is the velocity?
I would like to ask how to calculate c and d
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Which of the following statements are true about the velocity of money? Choose one or more: A. Velocity is part of the equation of exchange. B. Velocity is the number of times a unit of currency exchanges hands in a given year. C. An increase in velocity, all else being equal, increases real GDP. D. An increase in velocity, all else being equal, increases nominal GDP.
Suppose the velocity of money is 10 transactions per year, the price level for 2015 is $6, and real GDP in 2015 is $4,000,000. If the central bank holds the money supply constant and output grows by 10%, what will nominal GDP be in 2016? Answer:
1) Assume that the quantity theory of money holds and that velocity is constant at 5. Output is fixed at its full-employment value of 10,000, and the price level is 2. a) Determine the real and the nominal demand for money. b) The government fixes the nominal money supply in this same economy at 5,000. With output fixed at its full-employment level and assuming that prices are flexible, what will be the new price level? What happens to the price level if the nominal money supply rises to 6000?
1. Suppose velocity is 3, real output is 9000, and the price level is 1.5. What is the level of real money balances in this economy? 2. Considered the following data for an economy. Currency in circulation held by the public: CU = 400 dollars; Monetary Base: B = 800 dollars; currency/deposit ratio: cu = 0.25. What is the value of reserves in this economy? 3. Considered the following data for an economy. Currency in circulation held by the public: CU = 400 dollars; Monetary Base: B = 800 dollars; currency/deposit ratio: cu = 0.25. What is the value of the money multiplier in this economy? Please answer the three questions above (and highlight the answer if you can). Please explain the math/reasoning used
QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
Suppose you have the following monetary asset information:Cash in circulation: $300bDemand deposits: $400bTraveler’s checks: $50bSaving accounts: $2000bMoney Market Mutual Funds: $1000bShort term time deposits: $500ba. Calculate M1 and M2.b. Recall that the quantity theory of money states that MV = PT. If the velocity ofmoney is presumed fairly constant, how is it helpful to measure the money supply(whether M1 and M2) for purposes of predicting inflation?

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