Font YU H-3 YU H-4 YU H-5 YU Heade. YU O List ab Replace Paragraph A Select Styles 1. Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a constant potential of $4,000. Suppose the money supply is $1,000 in the first year, $1,100 in the second year, $1,200 in the third year, and $1,300 in the fourth Editing year. a. Using the equation of exchange, compute the price level in each year. Answer: M*V=P*Y P = M*V/Y FIRST YEAR P1 = 1000*2/4000-2000/4000-0.5 SECOND YEAR P2 = 1100*2/4000-2200/4000-0.55 THIRD YEAR P3 1200*2/4000-2400/4000-0.6 FOURTH YEAR P4 = 1300*2/4000-2600/4000-0.65 b. Compute the inflation rate for each year. Answer: As the price level changes c. If the central bank wanted to keep inflation at 10% each year, what money supply should it have targeted in each year? Answer: 100% 1022 AM English (Canada) AE- ENG 586 words 2020-03-18 12 3-

Font YU H-3 YU H-4 YU H-5 YU Heade. YU O List ab Replace Paragraph A Select Styles 1. Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a constant potential of $4,000. Suppose the money supply is $1,000 in the first year, $1,100 in the second year, $1,200 in the third year, and $1,300 in the fourth Editing year. a. Using the equation of exchange, compute the price level in each year. Answer: MV=PY P = MV/Y FIRST YEAR P1 = 10002/4000-2000/4000-0.5 SECOND YEAR P2 = 11002/4000-2200/4000-0.55 THIRD YEAR P3 12002/4000-2400/4000-0.6 FOURTH YEAR P4 = 1300*2/4000-2600/4000-0.65 b. Compute the inflation rate for each year. Answer: As the price level changes c. If the central bank wanted to keep inflation at 10% each year, what money supply should it have targeted in each year? Answer: 100% 1022 AM English (Canada) AE- ENG 586 words 2020-03-18 12 3-

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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