EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
expand_more
expand_more
format_list_bulleted
Question
Chapter 22, Problem 1PA
Subpart (a):
To determine
Money supply,
Subpart (b):
To determine
Money supply, price level, and velocity.
Subpart (c):
To determine
Money supply, price level, and velocity.
Subpart (d):
To determine
Money supply, price level, and velocity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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.
Please help with this Question
Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 trillion.
The price level is
, and the velocity of money is
.
Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will , and nominal GDP will .
True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year.
True
False
If the Fed wants an inflation rate of 9 percent instead, it should the money supply by
. (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
Knowledge Booster
Similar questions
- Question attahed in imagearrow_forwardSuppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. The price level is 2, and the velocity of money is 20 Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. If the Fed keeps the money supply constant, the price level will fall by 4% and nominal GDP will stay the same True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 4% next year. True False If the Fed wants an inflation rate of 11 percent instead, it should be rewritten as the following percentage change formula: the money supply by %. (Hint: The quantity equation can (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in Y).)arrow_forwardMoney Supply Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? 1. The government increases spending to increase aggregate demand. 2. The government increases taxes to curb aggregate demand. 3. Nominal wages, prices, and perceptions adjust upward to this new price level. 4. Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. 1. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run…arrow_forward
- 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.arrow_forwardWhat happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not changearrow_forwardThe money supply in Economia is $200 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Economia wants the inflation rate to be 1 percent. Assume that velocity increases by 2 percent this year. If real GDP grows by 8 percent this year, how will the central bank of Economia change the money supply this year? A) It will increase the money supply by 7 percent. B) It will increase the money supply by 9 percent. OC) It will increase the money supply by 8 percent. D) It will not change the money supply.arrow_forward
- The Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates." Explain the harmony among these goals in the long run. In the long run, ________. A. increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates B. low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment C. price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate D. price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowlyarrow_forwardWhich of the following describes the chain of events the Central bank uses to fight recession? A. Raise the monetary policy rate target, sell government securities, decrease reserves and loans, increase aggregate demand.B. Raise the monetary policy rate target, buy government securities, increase reserves and loans, decrease aggregate demand.C. Lower the monetary policy rate target, buy government securities, decrease reserves and loans, decrease aggregate demand.D. Lower the monetary policy rate target, buy government securities, increase reserves and loans, increase aggregate demand.arrow_forwardDraw a demand for money curve. Label it MDo- Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD,. Interest rate (percent per year) 8- Draw a demand for money curve that shows the effect of new financial technology that decreases the demand for money and that follows the decrease in real GDP. Label it MD,. What is the effect in the money market of a decrease in real GDP? 6- When real GDP decreases, A. there is a decrease in the quantity of money demanded. The opportunity cost of money increases B. there is an increase in the quantity of money demanded. The opportunity cost of money decreases O C. the quantity of money decreases O D. a decrease in the demand for money occurs 2- 2.6 2.8 3.0 3.2 3.4 Real money (trillions of 2005 dollars) >>> Draw only the objects specified in the question. Click the graph, choose a tool in the palette and follow the instructions to create your graph. DII F10 20 888 F9 F7 F8 F6 F5 F4 F3 esc F2 F1 $ % ! 8. 4 1 Y R Q W…arrow_forward
- If the money multiplier is determined to have a value of 5 and the Fed wants to increase the money supply by $10 billion, then it must cause the monetary base to _____ by _____. a. increase....10 billion b. increase... 2 billion c. decrease....10 billion d. decrease....2 billion e. increase...5 billion f. decrease....5 billionarrow_forwardHand written solutions not allowed.arrow_forwardSuppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must a. decrease the money supply, which will move output back towards its long-run level. b. decrease the money supply, which will move output farther from its long-run level. c. increase the money supply, which will move output back towards its long-run level. d. increase the money supply, which will move output farther from its long-run level.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning