Which of the following is a position held by monetarists? Changes in the velocity of money are unpredictable. Aggregate demand depends on money velocity but not on the money supply. O The economy is unstable; wages and prices are inflexible. The short-run aggregate supply curve slopes upward. Initially, the economy is in long-term equilibrium. Suppose there is an increase in velocity-that is, there is an increase in the average number of times a dollar is spent to buy goods and services. Show the long-run effect of this change according to the monetarist view, ceteris paribus, by dragging one or both curves on the graph below. PRICE LEVEL REAL GDP SRAS AD | | AD SRAS

Which of the following is a position held by monetarists? Changes in the velocity of money are unpredictable. Aggregate demand depends on money velocity but not on the money supply. O The economy is unstable; wages and prices are inflexible. The short-run aggregate supply curve slopes upward. Initially, the economy is in long-term equilibrium. Suppose there is an increase in velocity-that is, there is an increase in the average number of times a dollar is spent to buy goods and services. Show the long-run effect of this change according to the monetarist view, ceteris paribus, by dragging one or both curves on the graph below. PRICE LEVEL REAL GDP SRAS AD | | AD SRAS

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section14.2: Monetarism

Problem 1ST

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Assume that an economy is experiencing an economic contraction and the government decides to reduce taxes and increase government spending to stimulate the economy. By the way, Central Bank keeps money supply constant. i) Evaluate the effect of this policy on the a) Interest Rate , b)Money Demand (in the SHORT-RUN.) Explain and show your answer on the graph. ii)Evaluate the effect of this policy on output and price Level (in the LONG-RUN.) Explain and show your answer on the graph. Note : In figures, please label the axis and show the changes on the graphs using arrows.
Consider the following scenario: a. In Argentina, the central bank needs to determine by how much to increase the money supply next year. Suppose they estimate an increase in the overall economic activity (real GDP) of 2.5% percent and have a target inflation rate of 4%. The velocity of money has been observed to be constant over the past many years. By what level should the central bank change the money supply to achieve its inflation target? b. Next year, the central bank of Argentina wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply? c. What is an "inflation tax", and how might it explain the creation of inflation by a central bank?
What is the expected impact of a decline in the money supply to the US economy? A. Higher aggregate prices (inflation) B. Lower aggregate prices (deflation) C. There is no general relationship between the money supply and inflaton
Suppose the Federal Reserve (the US central bank) increases the money stock. Which of the following statements describes the effect of monetary expansion on real GDP and the price level in the Short Run? A) The price level will increase, and real GDP will remain at its natural level. B) The price level will increase, and real GDP will increase above its natural level. C) The price level will decrease, and real GDP will remain at its natural level. D) The price level will decrease, and real GDP will decrease below its natural level.
Suppose the Fed sets the growth in the money supply at 10%. Under the assumptions of the quantity theory of money and monetary neutrality, what will be the result in the long run? Both real GDP and the price level will grow, by a combined 10%. The price level will grow by 10%, and real GDP will be unchanged. The price level will be unchanged and real GDP will grow by 10%. The price level and real GDP will be unchanged.
Suppose the economy is in long-run equilibrium with GDP approaching $23T and the unemployment rate is approaching 4%. Now, let's say that the Fed has decided to decrease the money supply by 6%! The Fed proposes this move by raising the Prime Rate from the current 3.25 to 4.00 and to sell a new trunk or class of 30-year Treasury Bonds. This was not expected! What might be the short and long run effects on the economy as a whole if this were to take place? What happens to the inflation rate? What happens with unemployment? Like I said, this was actually expected that the Fed might take some sort of constriction action to stave off reduce inflation and to strengthen the money supply. However, President Biden, Congress and the Treasury Department had hoped for no contraction of the money supply until 2023.
PRICE LEVEL Show the long-run effect of this change according to the monetarist view, ceteris paribus, by dragging one or both curves on the graph below. (?) REAL GDP AD SRAS AD SRAS
For the next two questions, consider an economy that has the following information: Its money supply is $2000, growing at a rate of 3 percent annually. The average dollar in this economy is spent 5 times per year. The price level is $2.5; inflation is 2 percent per year. We assume that velocity (income velocity of money) is constant. Calculate this economy's real output. Enter only numbers and a decimal point in your answer as needed. Round your answer to two decimal places as necessary.
How does the concept of velocity of money relate to the quantity theory of money, and what factors can influence the velocity of money in an economy? A) The velocity of money has no connection to the quantity theory of money. B) The velocity of money represents the rate at which money changes hands in the economy and is a key factor in the quantity theory of money; factors like consumer confidence and banking practices can influence it. C) The velocity of money measures the total money supply in an economy and is unrelated to the quantity theory of money. D) The velocity of money is determined solely by government policies.
In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run Aggregate Supply curve is upward sloping (i.e., real GDP, Q, is not fixed in the short run), but the Long-run Aggregate Supply curve is vertical (as in our self-regulating model). Consider the equation of exchange, MV≡PQ An increase in government spending would Group of answer choices A) cause a recession. B) increase real GDP in the long run, but not the short run. C) cause inflation in the short run. D) not increase real GDP in the short or long run because there would be complete crowding out. E) increase real GDP in the short run, but not the long run.
In one version of the monetarist model, we said that the velocity of money, V, is treated as constant (as an approximation of reality). Also, recall that we said monetarists assume that the short-run Aggregate Supply curve is upward sloping (i.e., real GDP, Q, is not fixed in the short run), but the Long-run Aggregate Supply curve is vertical (as in our self-regulating model). Consider the equation of exchange, MV≡PQ (with V treated as fixed). Under the assumptions in this question, Group of answer choices A) none of the other options. B) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by x%. C) if the money supply (M) were to increase by x%, real GDP would increase by x%. D) if the money supply (M) were to increase by x%, the aggregate price level (P) would increase by more than x%. E) if the money supply (M) were to increase by x%, nominal GDP would increase by x%.
Exercise 1 cr+1 Consider the money supply Ms=mxB , m = cr+rr Assume that the demand for real money is given by the equation (M/P)d=0.25Y, and that the output has been growing 3% per year. Assume, further, that you have been called before Congress to testify about the long-run effects of increasing the growth of the money supply to 10 % per year. 1. State, compute and explain the long-run effects of this change on the inflation rate, on the nominal interest rate, on the real interest rate, on investment and on the real GDP. For each of them, argue both using the formulae that we studied and the macroeconomic dynamic beyond the effect. 2. Compute the implied money velocity. Suppose that the actual nominal value of the output (PY) is 1000, the value of the reserves is 50 and the toal value of the deposits is 75. Find the actual money multiplier. 3. State the different ways in which the central bank can achieve the change (+10%) in the money supply (think about the variables that can…