Monetary Policy: End of Chapter Problem Milton Friedman and Anna Schwartz argued in their Monetary History of the United States that money growth and velocity usually shift in the same direction. Thus, higher growth causes optimism and slower growth causes pessimism. They believed that velocity had its own shocks as well. a. Let's run through some examples of how this might work, in a setting where the Fed wants to keep AD growth stable at 10%. To keep things simple, we will assume that the Fed can control money growth perfectly. We will also assume that a 1% change in money growth causes a 0.5% shock to velocity growth in the same direction. Using these assumptions, fill in the missing values for the following table. For each case: AD = Initial Velocity Shock + Money Growth + Velocity Shock Caused by Money Growth Round your answer to the nearest hundredth. Year 2 money growth: Year 3 money growth: 15 Incorrect 8 Incorrect % Year Velocity Shock ****** 4% 3% 16% 8% 4% 0% Year 2 velocity shock: Year 3 velocity shock: Money Growth Incorrect 16 incorrect of Velocity Shock Caused by Money Growth 4% ×0.5-2% %

Monetary Policy: End of Chapter Problem Milton Friedman and Anna Schwartz argued in their Monetary History of the United States that money growth and velocity usually shift in the same direction. Thus, higher growth causes optimism and slower growth causes pessimism. They believed that velocity had its own shocks as well. a. Let's run through some examples of how this might work, in a setting where the Fed wants to keep AD growth stable at 10%. To keep things simple, we will assume that the Fed can control money growth perfectly. We will also assume that a 1% change in money growth causes a 0.5% shock to velocity growth in the same direction. Using these assumptions, fill in the missing values for the following table. For each case: AD = Initial Velocity Shock + Money Growth + Velocity Shock Caused by Money Growth Round your answer to the nearest hundredth. Year 2 money growth: Year 3 money growth: 15 Incorrect 8 Incorrect % Year Velocity Shock ****** 4% 3% 16% 8% 4% 0% Year 2 velocity shock: Year 3 velocity shock: Money Growth Incorrect 16 incorrect of Velocity Shock Caused by Money Growth 4% ×0.5-2% %

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter35: The Short-Run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 5PA

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Concept explainers

Monetary Policy and Equation of Exchange

The monetary policy has been defined as the policy that is used by the Federal Reserve (the central bank of the US) or the central bank (the central bank of India is RBI) along with the use of the supply of money to accomplish certain macroeconomic policies. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.

Monetary Economics

As from the name, it is very evident that monetary economics deals with the monetary theory of economics. Therefore, we can say that monetary economics, is that part of economics that provides us with the idea or notion of analyzing money as a holding with its function, which acts as the medium of exchange, the store of value through which the buying and selling are done and also the unit of account. It also helps in formulating the framework of the monetary policy of a bank in an economy which ultimately results in the welfare of the people residing in that particular economy. The monetary policy of an economy also helps to analyze and evaluate the financial health of it.

Question

Monetary Policy: End of Chapter Problem
Milton Friedman and Anna Schwartz argued in their Monetary History of the United States that money growth and velocity
usually shift in the same direction. Thus, higher growth causes optimism and slower growth causes pessimism. They believed
that velocity had its own shocks as well.
a. Let's run through some examples of how this might work,
in a setting where the Fed wants to keep AD growth stable at
10%. To keep things simple, we will assume that the Fed can
control money growth perfectly. We will also assume that a
1% change in money growth causes a 0.5% shock to velocity
growth in the same direction. Using these assumptions, fill in
the missing values for the following table. For each case:
AD = Initial Velocity Shock + Money Growth
+ Velocity Shock Caused by Money Growth
Round your answer to the nearest hundredth.
Year 2 money growth:
Year 3 money growth:
254
15
Incorrect
8
incorrect
Year
2
3
Initial
Velocity
Shock
4%
3%
16%
8%
4%
0%
Year 2 velocity shock:
Year 3 velocity shock:
Money
Growth
Incorrect
16
Incorrect
4%
Velocity Shock Caused
by Money Growth
4% ×0.5=2%
%

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