Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 9P
Sub- Part
A
To determine
the effect on the demand over time, when the economy’s real GDP is growing.
B
To determine
the effect on the interest rate over time, when the economy’s real GDP is growing.
C
To determine
the effect on the interest rate over time, when the fed changes the money supply in order to match the money demanded.
D
To determine
the effect of the policy as discussed in part c on the stability of the economy over the business cycle.
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Question: Consider an economy where the velocity of money is constant, and the economy is at full employment. If the central bank decides to increase the money supply by 5% but at the same time, the government imposes new taxes that effectively remove 5% of the consumers' disposable income, what would be the likely short-term effect on the nominal Gross Domestic Product (GDP) and the general price level? A) Nominal GDP remains unchanged; the general price level increases. B) Nominal GDP increases; the general price level remains unchanged. C) Nominal GDP remains unchanged; the general price level decreases. D) Nominal GDP increases; the general price level increases. Please don't use chatgpt it is giving wrong answer. Please try do it with yourself.
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