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 %)
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