Mainstream 17. Suppose that the money supply and the nominal GDP Are 100 billion and 500 billion, respectively. If the central bank reduces the money supply by $10 billion? By how much will nominal GDP have to fall to restore equilibrium, according to the monetarist perspective? Consider the following information for a hypothetical economy. Year 1 Money Supply = $200 billion LT annual growth of RGDP=2% Velocity of money = 3 suppose that velocity is constant and the economy Is initially operating at its FE level of RGDP 18. What is the level of nominal GDP in year ? 19. Suppose the FED adheres to a monetary rule. What will the FED have to do to the money supply between years 1 & 2 to keep P constant? 20. What policies are available to the FED to accomplish the necessary change in the money supply?

The central bank of Trinidad and Tobago decides to pursue acontractionary monetary policy. Provide a table with the money supply data and inflationrate for Trinidad and Tobago for 2014 - 2019.Based on the data from Trinidad, do you agree with thecentral bank’s decision to pursue a contractionary monetary policy? Explain why orwhy not.

Suppose that this year's money supply is $500 bilion, nominai GDP is $10 trillion, and real GDP is $5trillion. The price level is . and the velocity of money is Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. ar the Fed keeps the money supply constant, the price level will and nominal GDP will True or False: If the Fed wants to keep the price level stable instead, it should decrease the money supply by 4% next year. True False Ir the Fed wants an inflation rate of 10 percent instead, it should the money supply by (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in .)

Consider the model of supply and demand for central bank money. Assumethat there there are commercial banks. Suppose that people hold 20% of their moneyin currency and 80% of their money in deposits. The central bank sets the reserve-todeposit ratio at 10%. In the first period, the central bank increases the supply of moneyby $200, buying bonds through Open-Market Operations. Use this information to answerthe following questions:(a) For the second period (after the central bank has injected $200 in theeconomy), calculate: (i) the demand for currency, (ii) the amount of deposit held atthe commercial banks, (iii) the demand for reserves held at the central bank, and(iv) the demand for the high-powered money. How much is the additional moneysupply created at the end of the second period?2(b) How much is the additional money supply created at the end of the thirdperiod?(c) As time continues, additional money supply will be created. Calculatethe total increase in the money supply as a…

If the demand for money depends positively on real income and depends inversely on the nominalinterest rate, what will happen to the price level today if the central bank credibly announces thatit will decrease the money growth rate in the future, but it does not change the money supplytoday?

Suppose the central bank is following a constantmoney-growth-rate rule and the economy is hit witha severe economic downturn. Use an aggregate supply and demand graph to show the possible effects onthe economy. How does this situation reflect on thecredibility of the central bank if it maintains the moneygrowth rule? How does it reflect on the central bank’scredibility if it abandons the money growth rule torespond to the downturn?

In the country Constantania, suppose the velocity of money is always the same. Last year, the money supply was $2 billion and real GDP was $5 billion. This year, the money supply increased by 6 percent, real GDP by 4 percent, and nominal GDP is $6.5 billion. a) Calculate the velocity of money and the price levels in the two years, and then calculate the inflation rate. b) Calculate the inflation rate using the formula AM/M + AV/V = AP/P + AY/Y, where the Greek letter A represents a change and the ratio AM/Mx 100 is the percentage change (or the rate of change) in M. Compare this result with the result you obtained in part a. Why could there be some difference? c) What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

Suppose a researcher discovers that a measure of thetotal amount of debt in the U.S. economy over thepast 20 years was a better predictor of inflation andthe business cycle than M1 or M2. Does this discoverymean that we should define money as equal to the totalamount of debt in the economy?

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Suppose that the money demand function is - - 600 – 75r where r is the interest rate in percent. The money supply M is SIS00, and the price level Pis fixed at 5. Round answers to one place after the decimal when necessary. c. What happens to the cquilibrium interest rate, r, if the supply of money is raised from $1500 to $1725? d. If the central bank wants the interest rate to be 6.0 percent, what money supply should it set? Money supply =$