4. Velocity and the quantity equation Consider a simple economy that produces only jean jackets. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2021, the money supply was $400, the price of a jean jacket was $5.00, and the economy produced 800 jean jackets. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money (Dollars) Price Level (Dollars) 5.00 Quantity of Output (Jean jackets) 400 412 Year 2021 2022 Velocity of Money 10 The money supply grew at a rate of money 2021 to 2022 was 10 5.15 800 800 Nominal GDP (Dollars) , the change in the money supply was reflected 4,000.00 4,120.00 from 2021 to 2022. Since jean jacket output did not change from 2021 to 2022 and the velocity of in changes in the price level. The inflation rate from

4. Velocity and the quantity equation Consider a simple economy that produces only jean jackets. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2021, the money supply was $400, the price of a jean jacket was $5.00, and the economy produced 800 jean jackets. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money (Dollars) Price Level (Dollars) 5.00 Quantity of Output (Jean jackets) 400 412 Year 2021 2022 Velocity of Money 10 The money supply grew at a rate of money 2021 to 2022 was 10 5.15 800 800 Nominal GDP (Dollars) , the change in the money supply was reflected 4,000.00 4,120.00 from 2021 to 2022. Since jean jacket output did not change from 2021 to 2022 and the velocity of in changes in the price level. The inflation rate from

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Money supply, money demand, and adjustment to monetary equilibrium The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 2.0 1.33 2.5 4.0 2.00 4.00 8.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the Y money the typical transaction requires, and the y money people will wish to hold in the form currency or demand deposits.
2. Equilibrium and disequilibrium in the money market The following diagram represents the money market in the United States, which is currently in equilibrium. INTEREST RATE (Percent) 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 0.6 0.7 Money supply 0.9 1.0 1.1 1.2 1.3 0.8 QUANTITY OF MONEY (Trillions of dollars) Money demand the Money demand Money supply ? Suppose the Federal Reserve announces that it is lowering its target interest rate by 75 basis points, or 0.75%. It would achieve this by Shift either the money supply curve or the money demand curve, or both, to illustrate on the graph the effects of this policy. The sequence of events that results in a new equilibrium interest rate, after the Fed makes the change you selected, may be described as follows: Because there is money in the financial system, the quantity of interest-bearing financial assets such as bonds demanded , which means that bond issuers until the new equilibrium interest rate is achieved. sell the bonds. This process…
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 150 to 175. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. INTEREST RATE (Percent) 18 15 12 60 3 0 0 15 Money Supply Money Demand 30 45 60 MONEY (Billions of dollars) 75 90 Money Demand Money Supply (?) After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. People will try to other interest-bearing assets, and bond issuers will find that they equilibrium at an interest rate of % than the quantity of money bonds and interest rates until the money market reaches its new their money holdings. In order to do so, people will
3. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 4.5 4.0 6 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 Money Demand + 0.1 Money Supply 0.3 0.5 0.6 MONEY (Trillions of dollars) 0.2 0.7 0.8 New MS Curve New Equilibrium ? Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing…
2. Suppose that in the U.S., the income velocity of money (V) is constant. Suppose, too, that every year, real GDP grows by 2.5 percent (%ΔY/year = 0.025) and the supply of money grows by 10 percent (%ΔM/year = 0.10). a. According to the Quantity Theory of Money, what would be the growth rate of nominal GDP = P×Y? Hint: %Δ(X×Y)  %ΔX + %ΔY.
Consider a simple economy that produces only pies. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2019, the money supply was $360, the price of a pie was $4.50, and the economy produced 800 pies. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money Quantity of Output Nominal GDP (Dollars) Price Level Year Velocity of Money (Dollars) 360 (Dollars) 4.50 (Pies) 800 2019 2020 378 10 800 the change in the money supply was The money supply grew at a rate of reflected from 2019 to 2020. Since pie output did not change from 2019 to 2020 and the velocity of money in changes in the price level. The inflation rate from 2019 to 2020 was
Consider a simple economy that produces only pies. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2012, the money supply was $280, the price of a pie was $7.00, and the economy produced 600 pies. Fill in the missing values in the following table, rounding to the nearest cent when necessary. Year Quantity of Money Velocity of Money Price Level Quantity of Output Nominal GDP (Dollars) (Dollars) (Pies) (Dollars) 2012 280 2013 294 15 7.00 600 600 The money supply grew at a rate of from 2012 to 2013. Since pie output did not change from 2012 to 2013 and the velocity of money, the change in the money supply was reflected in changes in the price level. The inflation rate from 2012 to 2013 was
The following table shows a money demand schedule, which is the quantity of money demanded at various price levels ( P ).Fill in the Value of Money column in the following table.Price Level (P) Value of Money (1/P) Quantity of Money Demanded (Billions of dollars)1.00 ______ 1.51.33 _______2.02.00 _______3.54.00 _______ 7.0Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits.Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion.Use the orange line (square symbol) to plot the initial money supply ( MS1 ) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.
3. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 2.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 45 40 35 30 2.5 20 1.5 1.0 0.5 0 Money Demand 0.1 Money Supply 02 03 04 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 New MS Curve New Equilibrium Suppose the Fed announces that it is raising its target interest rate by 50 basis points, or 0.5 percentage points. To do this, the Fed will use open- market operations to money by the the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the new money…
3. The clasSical dichotomy and the neutrality of money The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Ginny spends all of her money on magazines and donuts. In 2015, she earned $14.00 per hour, the price of a magazine was $7.00, and the price of a donut was $2.00. Which of the following give the nominal value of a variable? Check all that apply. The price of a donut is 0.29 magazines in 2015. O Ginny's wage is 2 magazines per hour in 2015. O The price of a donut is $2.00 in 2015. Which of the following give the real value of a variable? Check all that apply. The price of a magazine is $7.00 in 2015. O Ginny's wage is $14.00 per hour in 2015. O The price of a magazine is 3.5 donuts in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Ginny's wage has risen to $28.00 per hour. The price of a magazine is $14.00 and the price of a donut is $4.00. In…
The table below shows money demand and supply schedules for a hypothetical economy, Argentia. Nominal Interest Money Demanded (Dmo) ($ billions) Money Supplied (Smo) ($ billions) Rate (き) 4 11 44 44 44 88 44 176 44 44 a. Draw a graph showing Dmo and Smo. Plot all 4 points for the money demand curve (Dmo). For the money supply curve plot only the 2 endpoints when the interest rate is 4% and 0%. Money Demand and Supply for an economy 4.5 Tools 4.0 3.5 Dmo Dm1 3.0 2.5 Smo Sm1 2.0 1.5 1.0 0.5 44 88 132 176 220 264 Quantity of Money ($ billions) Nominal Interest Rate (%)
Question 45 By definition, the velocity of money is the a) difference between this year's inflation rate and last year's. b) inverse of the time the average commercial transaction takes. c) number of individual commercial transactions occurring each year. d) rate at which the money supply is growing. e) number of times per year a unit of money changes hands.