a)Let the growth rate of the money supply rise to 10% without affecting the growth rate of real GDP or velocity. What happens to the inflation rate? If this new inflation rate becomes the expected inflation rate what happens to the nominal interest rate? b)Has the increase in the growth rate of money supply been generated by an open market operation conducted by the central bank? If so, how did the central bank generate this increase in the money supply? Only a qualitative answer is required.
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.
a)Let the growth rate of the money supply rise to 10% without affecting the growth rate of real
b)Has the increase in the growth rate of money supply been generated by an open market operation conducted by the central bank? If so, how did the central bank generate this increase in the money supply? Only a qualitative answer is required.
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