4. Velocity and the quantity equationConsider a simple economy that produces only pens. The following table contains information on the economy's money supply, velocity of money,price level, and output. For example, in 2018, the money supply was $360, the price of a pen was $4.50, and the economy produced 800 pens.Fill in the missing values in the following table, selecting the answers closest to the values you calculate.Quantity of MoneyPrice LevelQuantity of OutputNominal GDPYear(Dollars)Velocity of Money(Dollars)(Pens)(Dollars)20183604.50800201937810800The money supply grew at a rate offrom 2018 to 2019. Since pen output did not change from 2018 to 2019 and the velocity of moneythe change in the money supply was reflectedin changes in the price level. The inflation rate from 2018 to2019 was

The velocity of money indicates that the number of times a unit of money changes hands in given…

Answered: 4. Velocity and the quantity equation…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If the velocity of money is assumed to be constant in the short run, the quantity theory of money contends that a decrease in the money supply will lead to a proportional ____ a. Increase in unemployment rate b. Increase in nominal interest rate c. Increase in price level d. Decrease in nominal output
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
estion F Draw a graph that illustrates a demand-pull inflation. Price level (GDP deflator, 2012 = 100) The graph shows the aggregate demand curve, aggregate supply curve, and the potential GDP line. Potential GDP 140- Draw a curve that shows the effect of an increase in the quantity of money. Label it C,. Draw a curve that shows the money wage rate response that returns the economy to potential GDP. Label it C2. 130- Draw a curve that shows the effect of another increase in the quantity of money. Label it C3. 120- Draw a curve that shows the money wage rate response that returns the economy to potential GDP. Label it C4 AS Draw a point at the new price level and real GDP when the economy returns to its new long-run equilibrium. 110 110- 100- AD 20.0 90+ 18.0 18.5 19.0 19.5 20.0 20.5 21.0 21.5 22.0 Real GDP (trillions of 2012 dollars) >>> Draw only the objects specified in the question. Click the graph, choose a tool in the palette and follow the instructions to create your graph.…
Assume that an economy is in long-run equilibrium. Assume that consumers wish to hold less money because they use credit cards more frequently to purchase goods and services than cash. a. Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short run. b. Based on the change in the interest rate in part (a), what will happen to each of the following in the short run? i. Prices of previously issued bonds ii. The price level and real income. Explain. c. With a constant money supply, based on your answer to part b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? d. Assume the country's banking system has limited reserves. If the central bank wishes to reverse the change in the interest rate identified in part (a), what open market operation would it use? F
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
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 (%)
Quantity Theory of Money Use the quantity equation to fill in the blanks in the following table. Price Level (P) Real Output (Y) Money Supply (M) Velocity of Money M $1 $10,000 $5,000 $1 $15.000 $2 $25.000 $8.000 $32.000 2 pts Question 4 Inflation and Interest Rates Use the equation relating inflation and interest rates to fill in the blanks in the following table. Nominal Interest Rate ) Inflation Rate ) Real Interest Rate () 275 4.5 25 3.5 2.
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.
In the country Constantania, suppose the velocity of money is always the same. Last year, the money supply was $2 billion and real GDP was $5 billion. This year, the money supply increased by 6 percent, real GDP by 4 percent, and nominal GDP is $6.5 billion. a) Calculate the velocity of money and the price levels in the two years, and then calculate the inflation rate. b) Calculate the inflation rate using the formula AM/M + AV/V = AP/P + AY/Y, where the Greek letter A represents a change and the ratio AM/Mx 100 is the percentage change (or the rate of change) in M. Compare this result with the result you obtained in part a. Why could there be some difference? c) What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS