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. 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? b. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019?
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. 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? b. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
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- 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. 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?
b. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019?
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