Question 1Consider the charts below. Discuss them carefully and explain how the empiricalrelationship between M1 growth and inflation in the charts relates to the theoreticalrelationship between money and inflation? Is the empirical relationship consistentwith the theoretical relationship? If so, how so? If not, why not?United Statesmaleford wordband!20-151003025201510500961-10-151965-1970-1975-1960196519701980-1985-1975-| 19901995M1 growth-Inflation1980-19852000-2005-2010-0661Infs Landly1995Australia20002005-402010-3020100-10-30252015196010519701960M1 growth19651970-InflationSwitzerland20052010Canada2010-M1 growth-Inflation-M1 growth - InflationNote: Money growth is measured by the growth rate of M1. Inflation is measured by the growth rate of the consumer price index.Source: OECD Economic Outlook, OECD, 19 April 2012, http://www.oecd-ilibrary.org/statistics.

As per the theory the growth of money supply and inflation moves in the same direction. Which means…

Question 1 Consider the charts below. Discuss them carefully and explain how the empirical relationship between M1 growth and inflation in the charts relates to the theoretical relationship between money and inflation? Is the empirical relationship consistent with the theoretical relationship? If so, how so? If not, why not? 201 15 10 5 0 30 25 20 15 5 0961 -15 1960 1965 1970- 1975- 1980- 1985- 1990- 1995- United States 1965 1970- الله الله الله ال 2000- 2005- 2010- -M1 growth-Inflation Australia 40 2000- 2005- 2010- 30- 20- Sandrarifs Land 10- 0- -10- 30 25- 1960 20- 15 10 5 0 1965 1970 1975 1980- 1985 1990- 1995 -M1 growth-Inflation 2000 1960 1965- 1970- 1975 1980- 1985 Switzerland Whyn 0661 2005 2010 Canada ww 1995 2000- 2005 2010- M1 growth-Inflation -M1 growth-Inflation Note: Money growth is measured by the growth rate of M1. Inflation is measured by the growth rate of the consumer price index. Source: OECD Economic Outlook, OECD, 19 April 2012, http://www.oecd-ilibrary.org/statistics.

Question 1 Consider the charts below. Discuss them carefully and explain how the empirical relationship between M1 growth and inflation in the charts relates to the theoretical relationship between money and inflation? Is the empirical relationship consistent with the theoretical relationship? If so, how so? If not, why not? 201 15 10 5 0 30 25 20 15 5 0961 -15 1960 1965 1970- 1975- 1980- 1985- 1990- 1995- United States 1965 1970- الله الله الله ال 2000- 2005- 2010- -M1 growth-Inflation Australia 40 2000- 2005- 2010- 30- 20- Sandrarifs Land 10- 0- -10- 30 25- 1960 20- 15 10 5 0 1965 1970 1975 1980- 1985 1990- 1995 -M1 growth-Inflation 2000 1960 1965- 1970- 1975 1980- 1985 Switzerland Whyn 0661 2005 2010 Canada ww 1995 2000- 2005 2010- M1 growth-Inflation -M1 growth-Inflation Note: Money growth is measured by the growth rate of M1. Inflation is measured by the growth rate of the consumer price index. Source: OECD Economic Outlook, OECD, 19 April 2012, http://www.oecd-ilibrary.org/statistics.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the inflation rate is zero, the income elasticity of money demand is 0.75, and the interest elasticity of money demand is -0.25. Determine the inflation rate that results from each of the following events (starting back at zero for each one). Enter all answers as integers with no decimal places. If negative, be sure to include the minus sign before the number (no spaces). iv. Nominal money supply increases 5% and the interest rate rises from 5% to 10%.The inflation rate is now %? v. Nominal money supply increases 3%, the interest rate rises from 3% to 6%, and real income increases 16%. The inflation rate is now %?
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