MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 10, Problem 1PA
(a)
To determine
The change in
(b)
To determine
The change in velocity of money.
(c)
To determine
The change in output and prices in the long run.
(d)
To determine
The policy of Fed to stabilize
(e)
To determine
The policy of Fed to stabilize output.
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Students have asked these similar questions
The Fed wants to decrease the money supply when the economy is booming and inflationary pressures ________ in the economy.
The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "“r"?
Figure 15.2
interest rate
S*
S'
r*
B
r
r'
m*
m m'
quantity of money
a. There will be an excess demand for money.
b. The Fed will buy U.S. Treasury securities.
c. The quantity of money demanded will fall.
d. The quantity of money supplied will fall.
e. There will be an excess supply of money.
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.
Chapter 10 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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Similar questions
- The Quantity Theory of Money (QTM) states that ______. Note: the blank represents an entire phrase, not one word. (a) In the long run, an increase in the money supply will generate an equivalent increase in the velocity of money. (b) In the long run, an increase in the money supply will generate an equivalent increase in real GDP. (c) In the long run, an increase in the velocity of money will generate an equivalent increase in the price level. (d) In the long run, an increase in the money supply will generate an equivalent increase in the price level.arrow_forwardAssume 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.arrow_forwardIf nominal GDP is $400, real GDP is $200, and the money supply is $100, then what is the price level and the velocity of money? use calculation and draw the curve?arrow_forward
- In the country of Sparta, mnoney supply equals 13 million drams, real GDP is 65 million drams, the price level is 1.2, and the velocity of money is 6. a. What is the value of its nominal GDP? Nominal GDP: $ million drams. b. If, in the next year, V remains constant and real GDP increases to 78 million drams, what must happen to money supply in order to keep prices stable? Round your answer below to 1 decimal place. Money supply must (Click to select) v to $ million drams.arrow_forwardThe following table describes the economy of Unhappyland before and after the 2008 global financial crisis. The velocity of money is constant over time. Money Supply ($ billion) Nominal GDP ($ billion) Overall Price level 2000 $100 $200 100 2008 $110 105 2016 $220 115 a. Find the velocity of money in this economy. (2 marks) Calculate the inflation rates over 2000-2008 and 2008-2016. (2 marks) b. Calculate nominal GDP in 2008 and money supply in 2016. (4 marks) C. d. Calculate the growth rates of real GDP over 2000-2008 and 2008-2016. (4 marks) e. Discuss the relationship among money supply, real GDP and inflation rates. Confirm such relation using our date for the 2000-2008 and 2008-2016 periods. (4 marks)arrow_forwardIf nominal GDP is $400, real GDP is $200, and the money supply is $100, then what is the price level and the velocity of money? Show the calculation!arrow_forward
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- Draw a graph of the money market. Show the effect on the money demand curve, the money supply curve, and the equilibrium short-term nominal interest rate of each of the following: a. The Fed decreases the money supply. b. A recession causes real GDP to fall. c. The price level increases. d. The Fed increases the money supply at the same time that the price level falls.arrow_forwardPolitical officials often call on the monetary authorities to expand the money supply more rapidly so that interest rates can be reduced. Will expanding the money supply lower interest rates in the short run? What about the long run? Explain. The hightest interest rates in the world are found in countries that expand the supply of money rapidly. Can you explain why?arrow_forwardA problem that the Fed faces when it attempts to control the money supply is that the Fed can only control excess reserves but not total reserves. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. the Fed does not control the amount of money that households choose to hold as deposits in banks.arrow_forward
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