Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. The price level is 2, and the velocity of money is [ 20 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. If the Fed keeps the money supply constant, the price level will fall by 4% and nominal GDP will stay the same True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 4% next year. True False If the Fed wants an inflation rate of 11 percent instead, it should be rewritten as the following percentage change formula: the money supply by %. (Hint: The quantity equation can (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in Y).)

Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. The price level is 2, and the velocity of money is [ 20 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. If the Fed keeps the money supply constant, the price level will fall by 4% and nominal GDP will stay the same True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 4% next year. True False If the Fed wants an inflation rate of 11 percent instead, it should be rewritten as the following percentage change formula: the money supply by %. (Hint: The quantity equation can (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in Y).)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the money supply is growing at a rate of 10 percent per year, real GDP (real output) is growing at a rate of 0 percent per year, and velocity is constant, what will the inflation rate be? %. (Enter your response as an integer value.) If the money supply is growing at a rate of 10 percent per year, real GDP (real output) is growing at a rate of 0 percent per year, and velocity is growing at 2 percent per year instead of remaining constant, what will the inflation rate be? %. (Enter your response as an integer value.)
Suppose that velocity of money is constant, the expected inflation rate is always equal to the actual inflation rate, and the expected real interest rate is 3%. Answer the following questions. Justify your answers. -When the growth rate of the money supply is 8% and the growth rate of real GDP is 2%, what is the nominal interest rate?
Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.
6. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 5.5 5.0 New MS Curve Money Demand 4.5 4.0 3.5 3.0 2.5 2.0 1.5 0 0.1 0.2 Money Supply 0.3 0.4 0.5 0.6 0.7 0.8 MONEY (Trillions of dollars) New Equilibrium (?) Suppose the Fed announces that it is raising its target interest rate by 50 basis points, or 0.5 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing…
If the unemployment rate is falling from 4 to 3%, while the inflation rate is increasing from 2% to 4%, the Fed will most likely: decrease the inflation rate by setting a price ceiling. increase the money supply. O increase the target range for the federal funds rate. not change much. decrease the target range for the federal funds rate.
The Fed is committed to price level stability. You are told that the the money multiplier increases by twenty percent. The Fed should Reduce the monetary base by 20 percent Increase the monetary base by 20 percent Reduce the monetary base be 20 percent Increase the money supply by 20 percent do nothing
2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 12 Money Supply 10 Money Demand Money Supply MD1 2 MD2 10 20 30 40 50 60 MONEY (Billions of dollars) INTEREST RATE (Percent)
Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it ha a central bank called the Fed, but a major difference is that this economy is closed (and therefore does not have any interaction with other world economies). The money market is currently in equilibrium at an interest rate of 4% and a quantity of money equal to $0.4 trillion, designated on the graph by the grey star symbol. INTEREST RATE (Percent) 6.0 5.5 5.0 45 4.0 35 3.0 25 20 0 Money Demand 0.1 Money Supply 0.2 03 0.4 0.5 0.6 0.7 MONEY (Trillions of dollars) 08 4 New MS Curve New Equilibrium Ⓒ image 1 Suppose the Fed announces that it is lowering its target interest rate by 75 basis points, or 0.75 percentage points. To do this, the Fed will use open- market operations to the money by the public. Use the green line (triangle symbol) on the previous graph to illustrate the effects of this policy by placing the…
All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 3? (Use this information as necessary to answer the following 4 questions.) Suppose now that economists expect the velocity of money to increase by 50% as a result of the monetary stimulus. What will be the total increase in nominal GDP? If GDP is 1,500 and the money supply is 400, what is velocity? If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?
Suppose an economy has a price index at 19, real GDP of $11.83 trillion, and a money supply (M2) of $21.79 trillion. What is the M2 velocity of money for this economy? Round this to two digits after the decimal.