A standard "money demand" function used by macroeconomists has the form In(m)=Bo+B₁In(GDP) + B₂R, Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that B₁ = 1.51 and ₂ = -0.07. What is the expected change in m if GDP increases by 6%? The value of m is expected to (Round your respon by approximately. ger) increase decrease

A standard "money demand" function used by macroeconomists has the form In(m)=Bo+B₁In(GDP) + B₂R, Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that B₁ = 1.51 and ₂ = -0.07. What is the expected change in m if GDP increases by 6%? The value of m is expected to (Round your respon by approximately. ger) increase decrease

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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According to the quantity theory of money, if the supply of money and the velocity of money are held constant, the price level can only increase if output (Click to select) ♥ (Click to select) stays constant increases decreases
True or false. The basic quantity equation of money is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real output of the economy. True or false.
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Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.
Suppose the money demand function is Md/P = 1000+ 0.2Y - 1000 (r + π²). and Y = 2000, r = .06, π = .04, and Ms is 2600. Suppose the real interest rate rises to 0.11, and expected inflation rises to 0.09, but Y and Ms are unchanged. What would the inflation rate be? Select one: a. 4% b. 10% O c. 6% d. 8%
Q1. Suppose that money demand is given by the following function MD=$Y (0.5 - i) and that nominal GDP is given by $200. Moreover, assume that the monetary base is given by H³ = $8. It is also known that people in this economy hold all their wealth either in form of checkable deposits or in form of bonds (i.e. people hold no currency) and that banks must hold 10% of the checkable deposits as reserves. (a) Calculate the money market equilibrium using that the supply and the demand for central bank money is equal. (b) Calculate the overall supply of money. (c) What happens to the money market equilibrium if the central bank decides to increase the monetary base to Hs = $9? (d) What are the effects on the overall money supply in the economy? (Calculate the new overall supply of money and explain your result.)
12. Suppose that the money demand function is: d = 900 - 60i where r is the interest rate in percent. The money supply M is 3,000 and the price level P is fixed at 6. (optional) a. Graph the supply and demand for real money balances. Make sure to label all curves and axes. b. What is the equilibrium interest rate? What happens to the equilibrium interest rate if the supply of money is reduced from 3,000 to 2,400? Show your work. a. If the central bank wants the interest rate to be 3 percent, what money supply should it set? Show your work.
The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = PxQ. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (Mx V) = = You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = = Percentage Change in (PxQ) %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate of 5% per year, you can use this…
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.
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Consider again the economy with a total money supply of $2 million and nominal GDP of $6 million. In this economy, the money supply is growing at a rate of 3 percent per year, prices are falling at a rate of 1 percent, and velocity is constant. This economy's real output is growing at a rate of _________ percent. (Enter your answer "as a percent, but without a percentage sign." In other words, if you think output is growing at a rate of 99.99%, enter only 99.99 in the blank. Use a positive sign to indicate an increase and a negative sign to indicate a decrease.)
Suppose the velocity of circulation (V) is constant. The annual growth rate of real GDP is 3%. The money supply grows by 5% per year. Suppose the nominal interest rate is 1%, how much is the real interest rate?