Do not type in dollar signs or round any of your answers. Modern Quantity Theory of Money Problem. In year one, the money supply (M) is equal to 400, the velocity of money (V) is 6, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 430.5 and velocity is unchanged. If the economy grew at the rate of 2.5 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 400 to 430.5, the price level rose from 1.0 to indicating that the inflation rate was percent.

Do not type in dollar signs or round any of your answers. Modern Quantity Theory of Money Problem. In year one, the money supply (M) is equal to 400, the velocity of money (V) is 6, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 430.5 and velocity is unchanged. If the economy grew at the rate of 2.5 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 400 to 430.5, the price level rose from 1.0 to indicating that the inflation rate was percent.

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

Question 4 Nominal GDP, PY, is $7.5 trillion. The quantity of money is $3 trillion. The velocity of circulation is Select one: a. 2.5. b. 3. C. 10.5. d. 22.5 LEGO
The velocity of circulation is constant, real GDP is growing at 2 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 6 percent a year. Calculate the inflation rate, the growth rate of money, and the growth rate of nominal GDP. The inflation rate is percent a year.
Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Use the information in the table and your previous answers. The money supply grew at a rate of % from 2009 to 2010 and the inflation rate (percentage change in prices) grew at a rate of % from 2009 to 2010. [Use one decimal place in your answer] 2009 2010 Quantity of Money $200 $216 Velocity of Money 10 Price Level $5.00 Quantity of Output 400 400
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. Poornima spends all of her money on magazines and donuts. In 2015, she earned $27.00 per hour, the price of a magazine was $9.00, and the price of a donut was $3.00. Which of the following give the nominal value of a variable? Check all that apply. O The price of a donut is $3.00 in 2015. O Poornima's wage is $27.00 per hour in 2015. O The price of a donut is 0.33 magazines in 2015. Which of the following give the real value of a variable? Check all that apply. O The price of a magazine is 3 donuts in 2015. O Poornima's wage is 9 donuts per hour in 2015. O The price of a magazine is $9.00 in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Poornima's wage has risen to $54.00 per hour. The price of a magazine is $18.00 and the price of a donut is…
1. In the UK, during the Fall 2017 the key interest rate increased by 25 basis points. For a considerable time, the inflation rate was close to 3% and the pound depreciated due to Brexit and substantial debt. Use graphs and models to analyse the effects on all markets (real money balances market, IS-LM model). Explain effects on real interest rate, money demand and money supply.
Initially, the Central Bank sets the equilibrium interest rate at 7% at which money supply is equal to money demand. Suppose now nominal income starts to increase. What should the Central Bank do if it wants to maintain the interest rate constant at 7%? а. All of the answers are incorrect b. The Central Bank should increase the money supply by selling government bonds С. The Central Bank should reduce the money supply by selling government bonds d. The Central Bank should reduce the money supply by buying government bonds е. The Central Bank should increase the money supply by buying government bonds
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 2016, the money supply was 100, the price of a pie was $5.00, and the economy produced 200 pies. Fill in the missing values in the following table, rounding to the nearest cent when necessary. Year Money Supply Velocity of Money Price Level Quantity of Output Nominal GDP (Dollars) (Dollars) (Pies) (Dollars) 2016 100 5.00 200 2017 105 10 200 The money supply grew at a rate of______% from 2016 to 2017. Since pie output did not change from 2016 to 2017 and the velocity of money _______ , the change in the money supply was reflected _________ in changes in the price level. The inflation rate from 2016 to 2017 was _____%.
In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500bushels of wheat (Y or real GDP). Price of wheat and money supply are $2 per bushel and $1,000respectively. In 2020, the central bank increases money supply by $ 1040. Suppose both the velocity ofmoney (V) and the amount of wheat produced remain unchanged. a. Compute the velocity of money and nominal GDP in 2019. b. Calculate inflation rate in year 2020. c. Use a well-labelled money supply-demand diagram to illustrate and explain what happen to the pricelevel and the value of money after such money injection?
Velocity in the country of Nemedia is always stable. In 2012, the money supply was $100 billion and real GDP was $300 billion. In 2013, the money upply increased by 10 percent, real GDP increased by 5 percent, and nominal GDP equalled $660 billion. By how much did the price level increase etween 2012 and 2013? elect one: cross out a. 9.50 percent cross out b. 4.76 percent cross o C. 2.38 percent cross ou affe d. 10.0 percent
32. An economy is currently producing above Potential Output. An Increase in the Money Supply will: A. Increase Spending, Output, and Inflation more B. Move the Economy back to Potential GDP C. Do nothing D. Decrease Inflation, Lower Interest Rates, Increase Spending
An increase in ________ decreases the quantity of money people want to hold. a. the price level b. real GDP c. the interest rate d. the quantity of money
2. Suppose that in the U.S., the income velocity of money (V) is constant. Suppose, too, that every year, real GDP grows by 2.5 percent (%ΔY/year = 0.025) and the supply of money grows by 10 percent (%ΔM/year = 0.10). a. According to the Quantity Theory of Money, what would be the growth rate of nominal GDP = P×Y? Hint: %Δ(X×Y)  %ΔX + %ΔY.