Chapter PUBlem 6 The quantity of money is $5 trillion, real GDP is $12 trillion, the price level is 1.2, the real interest rate is 3 percent a year, and the nominal interest rate is 9 percent a year. Calculate the velocity of circulation, the value of M x V, and nominal GDP. >>> Answer to 2 decimal places. The velocity of circulation is

Chapter PUBlem 6 The quantity of money is $5 trillion, real GDP is $12 trillion, the price level is 1.2, the real interest rate is 3 percent a year, and the nominal interest rate is 9 percent a year. Calculate the velocity of circulation, the value of M x V, and nominal GDP. >>> Answer to 2 decimal places. The velocity of circulation is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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19 The following is TRUE about monetary policy EXCEPT, It relates to revenue and expenditure by government budget. It manages the creation and flow of money and credit in the economy. It aims to control the money supply and regulate the monetary sector. It uses interest rate and money supply as monetary tools.
4. [A Monetary Surprise] Consider an economy in which the demand for money is of the form M₁ = = P₁Y for t = 0, 1,2,..., where output is 150, the money velocity is 1.5. The money supply is 100 for t = 0, 1. In period 2, the central bank surprises people and announce that money supply will grow at 2 percent forever, that is, Mo = 100, M₁ = 100, M₂ = (1.02) M₁, M3 (1.02) M₂, and so on. (a) What is the inflation rate in period 1, 7? What is real money balance in period 1, ? What is the expected inflation in period 2, given the information available in period 1, E172? (b) What is the inflation rate in period 2, m₂? What is real money balance in period 2, 2? What is expected inflation in period 3, given the informa- tion available in period 2, E273? (c) What is the inflation rate in period 3, 73? What is real money balance in period 2, ? (d) Compare E₁₂ and 7₂. B
1.) The government increases the supply of money by 50%. The quantity equation of money tells us to expect that, in the long run, A.) real GDP will increase 50%. B.) velocity will increase 50%. C.) the price level will increase 50%. D.) the price level will decrease 50%.
2. In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion ● Nominal interest rate: 5 percent Price level: 1.5 . • Velocity of circulation: 7 • Required reserve ratio: 10%. a. Explain the quantity theory of money and how each side of the equation relates to Nominal GDP. b. Calculate the quantity of money in 2018. c. Assume the central bank made an open market purchase in 2019, increasing the monetary base by $10 million. What is the increase to the money supply? d. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019? e. Create a graph of the money market reflecting the money supply in 2018 and money demanded in 2018. Be sure to define your equilibrium point. Demonstrate the changes to your market in 2019 assuming the money demand curve does not change and nominal interest rate is 3%. f. Create a graph for the aggregate demand and aggregate supply model in 2018 and define your…
25. Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade. However, monetary policymakers are slow to recognize that the change is to potential, not current, output and interpret the decrease in output as a recession that leads current to fall below potential output. In this scenario, policymakers believe that building and incorrectly respond by interest rates, sending the economy into a(n) pressures are gap. a. inflationary; raising; inflationary b. inflationary; reducing; inflationary c. inflationary; raising; recessionary d. recessionary; reducing; inflationary e. Not enough information is given.
6. Demand for money and how demand for money curve look like, it’s relationship with GDP and interest rate. M1and M2, what does M1 supply of money consist of, M1 is also called narrowly defined money and it consists primarily of checkable deposits. How interest rates in the market are determined, Velocity of money, factors that determine velocity of money, V1 and V2. Quantity theory of money -
Kindly help with the questions below. (1). If the growth rate of the money supply increases to 18% , velocity grows at 1% and the real GDP grows at 2% per year on average, then what will be the inflation rate? (2) . If norminal GDP is $7 trillion , and the money supply is $ 2 trillion , then what is the velocity of money?
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The change in the velocity of circulation may be occurring because the ________. A. growth rate of the quantity of money is less than the growth rate of nominal GDP B. growth rate of the quantity of money is greater than the growth rate of real GDP C. real interest rate is greater than the nominal interest rate D. growth rate of the quantity of money is greater than the growth rate of nominal GDP
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Q) Suppose the money supply grew at an average annual rate of 20%, velocity was constant, the nominal interest rate averaged 16%, and output grew at an average annual rate of 8%. According to the Quantity Theory, a. inflation averaged 6% per year and the real rate of return was 2%. b. inflation averaged 12% per year and the real rate of return was 4%. c. inflation averaged 10% per year and the real rate of return was 8%. d. inflation averaged 20% per year and the real rate of return was 6%.
9. According to the quantity theory of money, the Fed could combat inflation by: Multiple Choice decreasing the supply of money. increasing taxes. increasing the supply of money. reducing taxes. 10. The real interest rate is: Multiple Choice adjusted for inflation. the amount of interest the bank pays you for saving or charges you for borrowing. the federal funds rate. the actual average interest rate in the economy. 11. Suppose the annual nominal interest rate is 10 percent and the inflation rate is 6 percent. If you deposit $1,000, at the end of the year: Multiple Choice your purchasing power will have increased. your savings will have nominal increased by $100. you will have earned a real rate of return of 4 percent. All of these statements are true.