Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 1QR
To determine
The level of price and the value of money.
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Chapter 17 Solutions
Principles of Macroeconomics (MindTap Course List)
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- The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (PP). Fill in the Value of Money column in the following table. Price Level (P) Value of Money (1/P) Quantity of Money Demanded 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the (a. more, b. less) money the typical transaction requires, and the (a. more, b. less) money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. (Graph in image) According to your graph, the equilibrium value of…arrow_forwardAccording to the quantity theory of money, a. V and M are constant. b. V and Y are not affected by the quantity of money. c. V and P are not affected by the quantity of money. d. V and M are not affected by changes in the price level.arrow_forwardThe government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. a) What happens to prices? b) What happens to nominal interest rate? c) Why might the government be doing this?arrow_forward
- Is it possible that money supply can be more than the money demand (this means that we can have too much money)?arrow_forwardA country has 4 million units of goods and services within itself. While these goods and services remain constant, the government printed money and increased the amount of money in circulation from 10 million units to 12 million units. Under these conditions: a) Calculate the amount of increase in prices. b) Calculate the rate of decrease in the purchasing power of moneyarrow_forwardExplain how an increase in a price level will affect the demand for money and the aggregate demand. Use relevant graphs to support your answer.arrow_forward
- How is the Inflation-free interest rate an estimate of the true earning power of money?arrow_forwardWhat happens if there is a shortage of money in the economy?arrow_forwardWhy do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?arrow_forward
- Consider a simple economy that produces only pens. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2017, the money supply was $280, the price of a pen was $7.00, and the economy produced 600 pens. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Year Quantity of Money (Dollars) Velocity of Money Price Level (Dollars) Quantity of Output (Pens) Nominal GDP 2017 280 7.00 600 2018 294 15 600 The money supply grew at a rate of ____ % from 2017 to 2018. Since pen output did not change from 2017 to 2018 and the velocity of money (a. increased, b. decreased, c. remained the same), the change in the money supply was reflected (a. entirely, b. partially) in changes in the price level. The inflation rate from 2017 to 2018 was ____%.arrow_forwardSelect economic problem occuring from an increase in the money supply and explain what happens.arrow_forwardThe existence of money makes trader easier. How is it that money can also increase the standard of living?arrow_forward
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