Assume an economy’s annual money velocity in circulation is 10. Please answer the following question in the view of monetarists (i.e., the neoclassical view): “If the annual economic growth rate is 5%, what should be the money supply increasing rate to maintain a low inflation rate as 2%?”

Q: In one version of the monetarist model, we said that the velocity of money, V, is treated as…

A: Given that, In one version of the monetarist model, we said that the velocity of money, V, is…

Q: n the simple monetary policy rule considered in Chapter 13, what role does the parameter m_bar…

A: Simple monetary policy rule: (Rt - r_bar) = m_bar * (πt - π_bar) Where πt is the actual inflation…

Q: In an economy at its steady state, real GDP, Y, increases at the rate g+n, where g is the…

A: We are going to solve this question using single variable optimisation technique.

Q: increase real GDP in the short run, but not the long run.

A: Explanation: Now the Economy starts from the semipermanent equilibrium(full employment equilibrium).…

Q: In the FT article “Japan’s core inflation hits 41-year high with central bank under policy pressure”…

A: I am going to  provided a response to a question that involved two parts. Firstly, I graphically…

Q: Explain how a sustained increase in the growth rate of the money supply (gM↑) at a particular time…

A: The way a person's wealth should be held is determined by the demand for money. When the demand…

Q: consider the money demand function. If the money supply is expected to be decreased in the next…

A: There exist a positive relationship between money supply and inflation.

Q: Distinguish between the Keynesian theory and the neoclassical theory of money demand

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Q: What can we interpret about the central bank’s preferences from this loss function (Equation 13.1)?…

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Q: The money supply of a country has been growing for many years causing expected inflation of 8% per…

A: Open Market Operations (OMO) It refers to the Federal Reserve (the Fed) purchasing and selling U.S.…

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Q: In the third quarter of 2020, U.S. GDP was $18,583 while full-employment GDP is an estimated…

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Q: On March 20, 2024, the statement that best describes the Federal Reserve's stance on inflation and…

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Q: Suppose the actual federal funds rate is equal to the rate implied by a particular inflation goal.…

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Q: In an economy at its steady state, real GDP, Y, increases at the rate g+n, where g is the…

A: We will use single variable maximization method to answer this question.

Q: The money supply of a country has been growing for many years causing expected inflation of 8% per…

A: The Taylor rule formula is a formula that helps central banks in choosing the federal funds rate…

Q: Inflation in the UK, Europe and in the United States has remained relatively low in recent years -…

A: New Keynesianism is a school of thought based on macroeconomic and microeconomics principles. It…

Q: Which of the following is a policy tool used to combat demand-pull inflation? a) Contractionary…

A: Inflation is the increase in the general price level. It can take place from two sources: an…

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A: Option B is correct i.e 5%

Q: Which of the following is a position held by monetarists? Changes in the velocity of money are…

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Q: Suppose that the parameters of the monetary policy rule are r=2%, m=1/2, and the inflation target is…

A: Given Information r=2%, m=1/2Inflation Target x= 2%

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A: Inflation refers to the situation where the general price level is increasing in the economy.

Q: As a response to high inflation, in March 2022, the Federal Reserve System (Fed) approved its first…

A: The Fed fund rate is the rate of lending and borrowing of the excess reserves which is also known as…

Q: “…monetary policy works on two principal economic variables: the aggregate supply of money in…

A: Difference in between the monetarist theory and Keynesian theory is that while Monetarist theory…

Q: In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon…

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Q: Federal Reserve uses an inflation target of 2-3%; most economists agree that the US natural rate of…

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Q: Suppose the economy begins at full employment. Label this starting point as point "1." Then,…

A: The model that illustrates how an economy’s total demand and total supply interact with each other…

Q: Exercise 11.7 In the two years before 2008 the Canadian federal government reduced the GST from 7…

A: Exercise 11.7 In the two years before 2008 the Canadian federal government reduced the GST from 7…

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Q: Economists sometimes argue that moderate inflation may help the economy by making wages in labor…

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Q: Current Actual Inflation Rate = 6% (like these days) Potential Real GDP=100,000 Actual Real…

A: The Taylor rule is given as,i* = π + 2 + 0.5(π - 2) + 0.5(GDP gap)where,i* = nominal federal funds…

Q: What did Friedman and Phelps argue about the effectiveness of monetary policies?     As long as…

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Q: If the money supply (M) is $300, the real GDP (Q) is 200, the velocity of money (V) is 6, the…

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Q: Use the money market model to show graphically what will happen to the nominal interest rate in the…

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.