If the money supply is $60 billion, the velocity of money is 7, and real GDP is $280 billion, then the price level equals: O 0.67. A.1.50. B.4.67. C.28. D. 1.25. E. 2.5
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- In the country of Juventus, the money supply is equal to $52 (bilion), the velocity of circulation is 5, and real GDP is $100 (bilion) a. What is the price level in Juventus, and what is the valur of its nominal GDP? Round your price level to 2 decimal places Price level Nominal GDP b. If money supply increases by 20 percent, what will be the new values of the price level and nominal GDP, assuming that Vand real GDP remain constant? Round your price level to 2 decmal olaces Price levet Nominal GDP c What does this suggest about the connection between money supply atnd price level? The relationship between money supply and price level in this case is Cick to select)6. Monetary policy in the long run Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose the real GDP of this economy grows at an annual rate of 2%. If the velocity of money is constant, the central bank can maintain the price level at 100 by means of which of the following? Expanding the money supply by 2% per year O Reducing the money supply by 2% per year les of O Keeping the money supply constant Suppose the central bank enacts an unanticipated restrictive monetary policy. As a result, the supply of loanable funds leading to a in short-term interest rates. The following graph shows the goods and services market of this economy at full employment. Assume that potential output remains constant. Adjust the graph to show the long-run effect of an unanticipated restrictive monetary policy on the goods and services market by dragging the 511 8/2/ aggregate demand (AD) curve, the short-run aggregate supply (AS) curve, or…2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…
- 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.True or false. Explain. 1. For a given level of P (price), is M (nominal money) increases by 10%, M/P also increases by 10%. 2. A monetary expansion leads to a lower output and a higher interest rate. 3. Equilibrium in the financial market implies that an increase in income leads to a decrease in interest rate making the LM curve downward sloping.2. The following table gives data for Austria from May 1922 to January 1923. The price index was equal to 1 in January 1921, whereas the money supply was in billions of Crowns. 1922 May June July Aug. Sept. Oct. Nov. Dec. Jan. Price Index 20.3 34.2 48.3 110.5 200.9 185.7 176.8 174.1 175.3 Money Supply 398 550 786 1353 2278 2971 3418 4080 4111 a). What is the economic phenomenon observed during May-September 1922? Support your answer with the given data. -1-
- indicates that, in the long run, if the money supply increases at a slower rate than real GDP, there will be _ in the price level. Select one: O A. The equation of exchange; an increase O B. The quantity theory of money; an increase O . The equation of exchange; a decrease O D. The quantity theory of money; a decreaseThe reserve requirement is 10%. Suppose that the Fed sells $100,000 worth of U.S. government securities from a bond dealer, electronically debiting the dealer's deposit account at Reliable Bank. Which of the following correctly describes the immediate effect of this transaction on the money supply? O A. The money supply decreases by $1,000.000. O B. The money supply decreases by $100,000. O C. The money supply decreases by $90,000. O D. There is no change in the money supply. O E. None of the above.Suppose the money supply is $4 trillion; nominal GDP is $16 trillion; and real GDP is $12 trillion. Ceteris paribus, it follows that the price level is and the velocity is Select one: O a. 1.33 ; 4 O b. 3; 4 O c. 1.33; 3 O d. 4; 3
- Again, consider an economy with real output of 400 and an average price level of $2. While velocity and the price level are constant, this economy's real output is increasing by 1.25 percent per year. Recall also that the average dollar in this economy is spent 10 times over a year, Calculate the percentage change in the money supply this economy is experiencing. Enter your answer "as a percent, but without the percentage sign." Show an increase in the money supply with a positive number (no sign) and a decrease with a negative number (with negative sign). For example, if the money supply is falling by 99 percent, enter only -99 in the blank.Quantity of Nominal interest rate money demanded Quantity of money supplied (percent per year) (trillions of dollars) (trillions of doll ars) 2.9 2.5 2.8 2.5 2.7 2.5 8 2.6 2.5 9. 2.5 2.5 10 2.4 2.5 The above table has the demand and supply for money. What is the equilibrium nominal interest rate? O a. 7 percent O b. 6 percent O c. 9 percent O d. 5 percent O e. 8 percentAssume that the following data characterize the hypothetical economy of Trance: money supply = $180 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10 billion for each 2-percentage-point fall in the interest rate. Instructions: Enter your answers as a whole number. a. What is the equilibrium interest rate in Trance? percent b. At the equilibrium interest rate, what are the quantity of money supplied, the quantity of money demanded, the amount of money demanded for transactions, and the amount of money demanded as an asset in Trance? Quantity of money supplied = $ billion Quantity of money demanded = $ billion Amount of money demanded for transactions = $ billion Amount of money demanded as an asset = $ billion
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