Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
8th Edition
ISBN: 9781337607735
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 30, Problem 3PA
To determine
Zero inflation and rate of money growth.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we assume that velocity is constant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal
Suppose a country has a money demand function
(M/P)ª = kY, where k is a constant parameter.
The
money supply grows by 12 percent per year,
and real income grows by 4 percent per year.
a. What is the average inflation rate?
b. How would inflation be different if real
income growth were higher? Explain.
c. How do you interpret the parameter k? What
is its relationship to the velocity of money?
d. Suppose, instead of a constant money demand
function, the velocity of money in this
economy was growing steadily because of
financial innovation. How would that affect
the inflation rate? Explain.
Use the concept of opportunity cost to explain why velocity is higher at higher interest rates?
Chapter 30 Solutions
Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
Knowledge Booster
Similar questions
- “If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.arrow_forwardWhat is the effect on velocity if Congress outlaws the use of credit cards?arrow_forwardThis question uses approximate data from 2020. Over the year real GDP declined by about 3 percent, the inflation rate was about 1 percent, and the money supply increased by about 25 percent. What does this tell us about the velocity of money and the quantity equation (MV PY) over the year 2020. = Question 26 options: That velocity must have increased by a substantial amount. That velocity must have decreased by a substantial amount. That velocity was constant. That the quantity equation is not correct.arrow_forward
- What did Friedman and Phelps argue about the effectiveness of monetary policies? As long as people’s inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. If people’s inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.arrow_forwardWhat direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?arrow_forwardWhat is velocity of money? List two major determinants of velocity of money.arrow_forward
- For the purpose of this exercise, assume that velocity is stable. If the Fed wants to keep inflation growing at about 2%, and the economy grew at about 6% during Q1 of 2021, then what would the growth in the money supply need to be in order for the Fed to hit its inflation target? And what does the substantially higher rate of money growth say about the likelihood of future inflation?arrow_forwardHow does money velocity contribute to the observation that in countries with high rates of inflation, the inflation rate exceeds the rate of money growth?arrow_forwardAccording to the data, output growth in the United States has averaged around 3%, inflation has averaged around 4% for the last 50 years, while money growth has averaged around 7%. What does this say about the growth rate of velocity? If money growth increased to round 10% for the next 50 years, what would you predict inflation to average over the next 50 years? Why?arrow_forward
- Define velocity of money and discuss the major determinants of velocity.arrow_forwardwhy must the velocity of money be stable or predictable for the quantity theory of money to yield useful predictionsarrow_forwardIf the money supply is $250 billion and nominal GDP is $1 trillion, the velocity of money is: Group of answer choices 4.00. 0.25. 2.50. 0.40.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning