Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 16, Problem 5QQ
To determine
Identify the
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Inflation – Work It Out: Question 1
In the country of Orcam, the velocity of money is constant. Real GDP grows by 5 percent per year, the money stock grows by 12
percent per year, and the nominal interest rate is 12 percent.
Calculate the growth rate of nominal GDP.
a. Calculate the growth rate of nominal GDP.
growth rate of nominal GDP:
“I do not think it is an exaggeration to say history is largely a history of inflation, usuallyinflations engineered by governments for the gain of governments.” F.A Hayek.“The government solution to a problem is usually as bad as the problem and very oftenmakes the problem worse.” M. Friedman“Every government intervention [in the marketplace] creates unintended consequences,which lead to calls for further government interventions.” Ludwig von Misesa) The above quotes criticizes government interventionism to the economy. But,Keynesians believe that there is no way to stabilize the markets other than throughgovernment intervention (spending, taxes, planning and regulation). By givingreferences to the end of the Keynesian Era, explain why government interventionismhas lost its popularity after the 1970s.
When stagflation began to appear in the US economy in the late 1960s, economists and policymakers were perplexed because they had never seen __________ and __________ at the same time.
a.
high inflation rates; high interest rates
b.
a stagnant economy; high unemployment rates
c.
high unemployment rates; high growth rates
d.
high inflation rates; high unemployment rates
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