Suppose the Australian money supply (M) grows at 4% in 2021, real GDP (Y) grows at 2%, the real interest rate (r) is -1%, and the money demand function is as follows. (M/P) = 0.7Y Based on the above information, answer the following questions. (a) Calculate the nominal interest rate (i), assuming the quantity theory of money holds. (b) Suppose the Reserve Bank of Australia (RBA) announces it will tighten its monetary policy in 2022, resulting in the Australian public expecting inflation to change to 1%. Assuming the nominal interest rate is unchanged at the 2021 level, what is the ex-ante real interest rate in 2022? (c) Assume the Fisher effect holds, and the real interest rate remains constant at

Suppose the Australian money supply (M) grows at 4% in 2021, real GDP (Y) grows at 2%, the real interest rate (r) is -1%, and the money demand function is as follows. (M/P) = 0.7Y Based on the above information, answer the following questions. (a) Calculate the nominal interest rate (i), assuming the quantity theory of money holds. (b) Suppose the Reserve Bank of Australia (RBA) announces it will tighten its monetary policy in 2022, resulting in the Australian public expecting inflation to change to 1%. Assuming the nominal interest rate is unchanged at the 2021 level, what is the ex-ante real interest rate in 2022? (c) Assume the Fisher effect holds, and the real interest rate remains constant at

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Volatility in the growth rate of real GDP subsided in the 40 years after 1980. One key reason for the relative decline in volatility is that: (a) the Fed became more adapt at keeping the inflation rate stable; (b) the Fed continuously implemented aggressive monetary easing; (c) the Fed continuously implemented monetary tightening; (d) the value of the U.S. dollar in foreign exchange markets rose persistently.
The commodity market for a simple two-sector economy is in equilibrium when Y = C + I. The money market is in equilibrium when the supply of money (Ms) equals the demand for money (Md), which in turn is composed of the transaction-precautionary demand for money (Mt) and the speculative demand for money (Mz). Assume a two-sector economy where C = 5 + 0.8Y, I = 100 - 75i, Ms = 250, Mt= 0.3Y, and Mz = 50 - 150i. , find the IS and LM and equliprium in commodity and money markets. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Continued monetary tightening 05 October 2022 The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 3.5% from 3.0%. The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce. Global consumer price pressures remain heightened. The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine. A recent decline in oil prices and an easing in some supply-chain constraints have seen headline inflation measures fall in some countries. However, core measures of inflation have risen and persist. Central banks are tightening monetary conditions, implying a weaker growth outlook for New Zealand's trading partners. In New Zealand, the level of domestic spending has…
d) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.
Determine if True or False for each statement:
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Multiple Choice increase the interest rate from 6 percent to 8 percent. decrease the interest rate from 6 percent to 4 percent. decrease the interest rate from 6 percent to 2 percent. maintain the interest rate at 6 percent.
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Felix receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 2.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 2.5% per year, find the nominal interest rate on Felix's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Compared with lower inflation rates, a higher inflation rate will _______ (increase/decrease) the after-tax real interest rate when the government taxes nominal interest income. This tends to ________ (encourage/discourage) saving, thereby ________ (increasing/decreasing) the quantity of investment in the economy and ________ (increasing/decreasing) the economy's long-run…
C = 100 + 0.5 - (Y – T) I = 200 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are G= 300, Ť= 200. The LM (money market equilibrium) curve is M Y 10i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 2000 units of money, and expected inflation is a“ = 0.02. Assume that the long-run equilibrium level of output is Y = 1000. Short-run equilibrium output is initially at the same level (Y = 1000). Suddenly, news of a new world-beating super-vaccine raises the investment function to I = 250 – 1000 -r Question 1 Derive the long-run equilibrium values of output Y, consumption C, private and public savings Sprivate and Spublie, investment I, the real and nominal interest rates (r, i) and price P, before and after the vaccine news shock. In particular: 1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from…