EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Question
Chapter 7, Problem 2NP
a)
To determine
To evaluate the real money
b)
To determine
To evaluate the real money demand, nominal money demand, and velocity If P = 200, Y = 1000, and i = 0.10
c)
To determine
To evaluate whether velocity is affected by an increase in real income, by an increase in the nominal interest rate, and by an increase in the price level.
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Assume that the quantity theory of money holds and that velocity is constant at 4. Output is fixed at its full-employment value of 42,000, and the price level is 1.00.
a. Determine the following:
Real demand for money: 10500 (enter your response as an integer)
Nominal demand for money: 10500 (enter your response as an integer)
b. In this same economy the government fixes the nominal money supply at 7,500. With output fixed at its full-employment level and with the assumption that prices
are flexible, what will be the new price level?
P=(enter your response as a decimal rounded to two decimal places).
Assume that the quantity theory of money holds and that velocity is constant at 4. Output is fixed at its full-employment value of 18,000, and the price level is 1.25.
a. Determine the following:
Real demand for money:
(enter your response as an integer)
Nominal demand for money:
(enter your response as an integer)
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.
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