The money supply in Economia is $200 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Economia wants the inflation rate to be 1 percent. Assume that velocity increases by 2 percent this year. If real GDP grows by 8 percent this year, how will the central bank of Economia change the money supply this year? A) It will increase the money supply by 7 percent. B) It will increase the money supply by 9 percent. OC) It will increase the money supply by 8 percent. D) It will not change the money supply.

The money supply in Economia is $200 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Economia wants the inflation rate to be 1 percent. Assume that velocity increases by 2 percent this year. If real GDP grows by 8 percent this year, how will the central bank of Economia change the money supply this year? A) It will increase the money supply by 7 percent. B) It will increase the money supply by 9 percent. OC) It will increase the money supply by 8 percent. D) It will not change the money supply.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Suppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP is 5 percent above potential GDP. According to the Taylor rule, in what direction and by how much should the Fed change the real federal funds rate? SEE PICTURE!!
If the money supply is $60 and nominal GDP is $360, then Group of answer choices A) the velocity of money must be 300. B) the velocity of money must be 4.2. C) the velocity of money must be 3. D) the velocity of money must be 60. E) the velocity of money must be 6.
Which of the following is NOT implied by the Quantity Theory of Money (QTM)? a With constant money supply and output an increase of velocity creates an increase in price level. b If velocity is stable an increase in the money supply is accompanied by a proportional increase in nominal GDP. c With constant money supply and velocity an increase in output creates a proportional increase in price level. d If velocity is stable an increase in the money supply is accompanied by a proportional increase of price level when real output stays the same.
21.According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A)the Organization of Petroleum Exporting Countries (OPEC). B)the U.S. Treasury. C)the Federal Reserve. D)private citizens. 22.According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A)increasing. B)decreasing. C)7 percent. D)constant. 23.If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A)3 B)4 C)9 D)11 24.Percentage change in P is approximately equal to the percentage change in: A)M. B)M minus percentage change in Y. C)M minus percentage change in Y plus percentage change in velocity. D)M minus…
40
Suppose velocity increases by 2 percent and potential GDP grows by 4 percent. The trend inflation rate will equal zero if the quantity of money grows by -2 percent. 4 percent. 0 percent. 2 percent.
QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
The Federal reserve has increased the monetary base at very rapid rates in 2007-2010 and again in 2020-2022. In the first case, inflation was 2% while in the second case inflation was 8%. The explanation for this is: The money multiplier fell during the first period but is constant in the second period. The money multiplier increased during the first period but fell in the second period Gas prices increased in the second period. Supply chain problems increased in the second period We do not have enough information
Suppose real GDP is forecasted to grow by 2.18%, the velocity of money has been stable, and the Fed announces an inflation target of 2.90%. What is the largest money growth rate the Fed could implement and still achieve its inflation target? Now suppose there is a mid-year revision of the GDP forecast that lowers the expected growth rate below 2.18%. Ceteris paribus, what impact will this lower growth rate have on the rate of inflation? O Inflation will be lower than originally expected. O Inflation will be the same as originally expected. Inflation will be higher than originally expected. Inflation can be either higher or lower than originally expected.
Suppose that the money supply increases by 20 percent. If there is no inflation, what does the quantity theory of money tell us must happen to real GDP? It must increase by more than 20 percent. It must increase by less than 20 percent. It must increase by exactly 20 percent. None of the above are correct. Which of the following statements is true of the federal funds market? No banks are refused loans in the federal funds market. In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability. Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks. On a graph with real GDP growth on the x-axis and the unemployment rate on the y-axis, you plot each year's values for the United States as…
Given that velocity is 4, real GDP is 8, and the price level is 2. Suppose that the Central Bank decides to increase nominal money supply to 6 while velocity remains unchanged, calculate the percentage change in nominal GDP.
4 According to the simple Quantity Theory of Money, if velocity is constant and real GDP grows by 2% per year, then money supply growth of 3% per year generates an output gap of 1% an inflation rate of 1% an unemployment rate of 1% an interest rate of 1%