1. In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion Nominal interest rate: 5 percent Price level: 1.5 Velocity of circulation: 7 Required reserve ratio: 10% a. Create a graph of the money market reflecting the money supply in 2018 and money demanded in 2018. Be sure to define your equilibrium point. Demonstrate the changes to your market in 2019 assuming the money demand curve does not change and nominal interest rate is 3%. b. Create a graph for the aggregate demand and aggregate supply model in 2018 and define your equilibrium points. Demonstrate the changes to your model in 2019 assuming potential GDP increased by 3%. Identify whether the economy in 2019 is at full employment, is in a recessionary gap, or an inflationary gap.
1. In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion Nominal interest rate: 5 percent Price level: 1.5 Velocity of circulation: 7 Required reserve ratio: 10% a. Create a graph of the money market reflecting the money supply in 2018 and money demanded in 2018. Be sure to define your equilibrium point. Demonstrate the changes to your market in 2019 assuming the money demand curve does not change and nominal interest rate is 3%. b. Create a graph for the aggregate demand and aggregate supply model in 2018 and define your equilibrium points. Demonstrate the changes to your model in 2019 assuming potential GDP increased by 3%. Identify whether the economy in 2019 is at full employment, is in a recessionary gap, or an inflationary gap.
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 4SQP
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1. In 2018, assume the economy was at full employment with the following economic data:
- Real
GDP : $7 billion - Nominal interest rate: 5 percent
- Price level: 1.5
- Velocity of circulation: 7
Required reserve ratio: 10%
a. Create a graph of the
b. Create a graph for the aggregate demand and
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