The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 180 160 140 120 100 80 60 250 270 290 310 330 350 370 390 410 430 Real GDP (in billions) AS AD LAS

The economy of Carlsberg is presently in equilibrium, but is suffering a recession as depicted in the graph below. The central bank of Carlsberg is introducing an expansionary monetary policy to get the economy back to the full-employment level of real GDP. Price index 180 160 140 120 100 80 60 250 270 290 310 330 350 370 390 410 430 Real GDP (in billions) AS AD LAS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The money supply of a country has been growing for many years causing expected inflation of 8% per year. The economy’s current GDP growth rate is 1%. The Central Bank’s estimate of long term GDP growth rate is 3%. The “real” interest rate, r, is 4%. If the Central bank follows the Friedman rule policy, how fast should it grow the money supply? (answer should be an integer reflecting the %)
PROMPT: For all questions assume the following starting point: The money supply (M) is composed of currency (C) held by the non-bank private sector (NBPS) and demand deposits (DD) held at banks. Banks are required to hold cash reserves (CR) equal to 10% of their demand deposit liabilities. The remainder of the banks DD liabilities are backed by loans (L). Initially banks have 2000 in cash reserves and the NBPS holds 500 in currency. Currently, banks do not hold excess reserves. OTHER INFORMATION: (A.) What are the initial values for DD, L and M? QUESTION TO BE SOLVED: What would happen to the values in part (A.) if banks decided to hold 2.5% excess reserves?
Question 1. A country’s money supply equals 300 bln USD, nominal GDP equals 3000 bln USD, and real GDP – 1500 bln USD in 2018. Calculate the price level and the velocity of money. Assume output increases by 10% next year. Determine what money supply should the central bank of this country set next year in order to keep the prices stable. Discuss what can happen if the growth of a country's money supply is faster than the growth of its output. Use the quantity theory of money to support your statement.
what is the reason why monetary policy cannot keep GDP above its full-employment level for an extended period of time? options: fiscal policy will not allow this type of monetary policy to continue nominal wage expectations will eventually adjust to reflect monetary policy induced inflation restaurants will stop raising prices the unemployed will eventually protest
Which interest rate is most likely to serve as the target interest rate by a Central Bank? a)The rate on six-month loans of bank reserves. b)The rate on overnight loans of bank reserves. c)The rate on 30-year mortgage loans. d)The rate on credit card balances. e)The rate on 10-year auto loans.
According to the quantity theory of money equation, if the government increased the money supply by 5%, and we observed prices increase by 1% and real GDP increase by 2%, then the velocity of money: Increased by 2% Decreased by 5% Decreased by 2% Remained constant
Suppose that you know the following information about the economy. The rate of change of the velocity of circulation is 0.5 percent per annum. Real GDP is growing by 1.0 percent per annum. What is the annual rate of inflation if the money supply is growing by 3.4 percent per annum? (Enter the numerical value only)
In the country of Winterfell, the velocity of money is constant. GDP growth is 4% per year, the money stock grows at 14% per year, and the nominal interest rate is 11%. What is the real interest rate? (If your answer is 0.012, please write 1.20, do not include %)
Determine the effect of the following situations on the money supply in the economy. Indicate whether there will be an increase, decrease, or no change.1. Bangko Sentral ng Pilipinas sold stocks and bonds which many investors bought2. No requirements for loans hence, many applicants were approved3. Implementation of contractionary monetary policy4. Increase in importation of goods5. Expansive savings campaign which attracted many depositors6. Increase in tourist spending in the country7. Inflow of foreign investments8. More taxes unspent by the government9. Increase in loan interest rates for borrowers10. Increase in taxes imposed on workers11. Tight credit policy12. Increase in government expenditures13. Increase in exports14. Offering of high interest rates on savings accounts15. Increase in building infrastructures by the government
According to the quantity theory of money, if the supply of money and the velocity of money are held constant, the price level can only increase if output (Click to select) ♥ (Click to select) stays constant increases decreases
The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 3.5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star.
Relevant knowledge is important because monetary policy affects all aspects of the economy as well as the functioning of the product and financial markets. Explain what happens to aggregate demand, real GDP, and the price level.