Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 30, Problem 3QR
To determine
Nominal and real variables.
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A) What is the notable insight of the Quantity Theory of money?
(a) An Increase in the quantity of money, ceteris paribus will result in inflation
(b) A decrease in the quantity of money, ceteris paribus will result in inflation
(c) An Increase in the quantity of goods and services, ceteris paribus will result in inflation
(d) An Increase in the demand for money holding, ceteris paribus will result in inflation
B) What is the primary purpose of the interest rate in Bagehot's rule?
(a) To increase the revenue of the government
(b) To decrease uncertainity
(c) To eliminate moral hazard
(d) To increase the revenue of the central bank
What’s the difference between Nominal and Real variables in monetary policy?
There is a relationship between the quantity of money in an economy and the level of prices of goods and services. A well known theory has explained this important relationship logically. Explain that theory to elaborate the philosophy of this relationship in a meaningful way. The base for your discussion should be the Fisher’s equation of exchange. Furthermore, state the convincing reasons/criticisms due to which this quantity theory of money is considered as a weak theory and has no close concern with the real life situation.
Chapter 30 Solutions
Principles of Economics (MindTap Course List)
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- The 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_forwardIs it possible that money supply can be more than the money demand (this means that we can have too much money)?arrow_forwardName a couple of “players” in the monetary supply process.arrow_forward
- According to the Quantity theory of Money, MV=PT, the two sides of the equation Is mostly correct because of people's incentives Is never correct because of trade-offs Some times needs to be brought into equality by government policy always balance because total value of sales is the same as the amount of money paid for them Oarrow_forwardExplain the quantity theory of money and explain how the money demand, money supply, and quantity of money are related to each other? Which variable (s) will be affected if the money supply increases in the economy? Take in context to what has been happening in the U.S economy in the past few years.arrow_forwardWhat are the differences between the Fisherian and Cambridge versions of the quantity theory of money? In the Classical model, what role does money have in determining output, employment, the price level and the interest rate ? Show by diagrams.arrow_forward
- In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon of economic quotables. As Friedman correctly put it in a book chapter titled “What Price Guideposts?”: “Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output…. It follows that the only effective way to stop inflation is to restrain the rate of growth of the quantity of money.” While true, Friedman’s classic statement doesn’t tell us anything about what drives the growth of the money supply that fuels inflation. Hyperinflations are rather rare. The first hyperinflation occurred in France, where the mandate collapsed. In August 1796, France’s monthly inflation rate peaked at 304%. Almost half of the 58 recorded hyperinflations occurred in the 1990's and were the result of the funding deficiencies associated with the new post-communist states. Today, there is only one hyperinflation, Venezuela’s. Post…arrow_forwardhttps://aplia.apps.ng.cengage.com/af/servlet/quiz?ctx=bkhana-0031&quiz_action=takeQuiz&quiz_probGuid=... A to Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a variable, will cause the price level, a variable, to increase but will have variable. The notion that an increase in the no long-run effect on the quantity of goods and services the economy can produce, a quantity of money will impact the price level but not the output level is known as In the short run, however, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. You will…arrow_forwardExplain the following lines taken from the selection, Imagination and Reality by J. Winterson: .” Money culture recognizes no currency but its own. Whatever is not money, whatever is not making money, is useless to it. The entire efforts of our government as directed through our society are efforts towards making more and more money. This favors the survival of the dullest. This favors those who prefer to live in a notional reality where goods are worth more than time and where things are more important than ideas.”arrow_forward
- I need the answer as soon as possiblearrow_forwardIncrease in money supply in an economy increases inflation. Use appropriate diagrams to explain the validity or otherwise of the above statement.arrow_forwardUse the money market model to show graphically what will happen to the nominal interest rate in the following instances. Make sure to correctly label all axes and curves. a) There is a large bout of unexpected inflation b) The economy's output begins to rapidly contract c) The Fed increases the supply of moneyarrow_forward
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