Part (a) Introductory economics textbooks frequently claim that central banks can perfectly control money supply and present diagrams of the money market with a vertical money supply curve. Explain why this is an oversimplification and why it is not an accurate portrayal of the real- world situation. Part (b) According to the quantity theory of money, what is the effect of an 18 per cent decrease in the quantity of money? Explain.
Part (a) Introductory economics textbooks frequently claim that central banks can perfectly control money supply and present diagrams of the money market with a vertical money supply curve. Explain why this is an oversimplification and why it is not an accurate portrayal of the real- world situation. Part (b) According to the quantity theory of money, what is the effect of an 18 per cent decrease in the quantity of money? Explain.
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 5SQ
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