o19. Which of these statements is true according to the Keynesian (post-Keynesian) view?a. Increases in monetary base cause an increase of money supply20b. Increase of money supply cause inflationc. Demands of firms for credit creates money supplyd. Central banks can directly control money supplycan couNOMIC OFprough anti-lated according to Keynes?

Keynesian believes that demand management is key to restore equilibrium in the economy. The economy…

19. Which of these statements is true according to the Keynesian (post-Keynesian) view a. Increases in monetary base cause an increase of money supply Increase of money supply cause inflation b. c. Demands of firms for credit creates money supply 20 d. Central banks can directly control money supply THEYALL SconomiG ON lated according to Keynes?

19. Which of these statements is true according to the Keynesian (post-Keynesian) view a. Increases in monetary base cause an increase of money supply Increase of money supply cause inflation b. c. Demands of firms for credit creates money supply 20 d. Central banks can directly control money supply THEYALL SconomiG ON lated according to Keynes?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 1PA

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How has the Federal Reserve used monetary policy and how has the Federal Government used fiscal policy to lessen the impact of the COVID-19 recession? A) The Federal Reserve has expanded the money stock while the Federal Government has decreased its spending. B) The Federal Reserve has contracted the money stock while the Federal Government has decreased its spending. C) The Federal Reserve has contracted the money stock while the Federal Government has increased its spending. D) The Federal Reserve has expanded the money stock while the Federal Government has increased its spending.
Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?
5. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. D.) What money supply should the Fed set next year if it wants to keep the price level stable? E.) What money supply should the Fed set next year if it wants an inflation rate of 10%.
Suppose the economywide demand for money is given by: M = P(0.3Y − 25,000i). The price level P equals 3, and real output Y equals 8,000. a. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 2 percent? The nominal money supply should be set at $ . b. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 3 percent? The nominal money supply should be set at $ .
Which monetary policy tool can the Federal Reserve use to conduct an expansionary monetarypolicy (please state at least one instrument)? Which monetary policy instrument can the Fed useto conduct a restrictive monetary policy? Assume the country is experiencing highunemployment and a recession, such as during 2001, 2008-2009, and 2020. What is the Fedlikely to do in this scenario? Discuss the effects of such policy on the economy. Can you givea specific example to what the Fed did during any of those recessions? This is not a writing, it is economic.
Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?
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1) The IS-LM Model a) In the IS/LM model explain what happens to equilibrium output and interest rate if governmentsimultaneously pursues expansionary fiscal policy and the central bank opts for a contractionarymonetary policy. Show with the help of a graph along with a very brief verbal explanation. b) Label the statements below as true or false and give a brief explanation for false statementsonly. i) For a given level of P (price), if M (nominal money) increases by 10%, M/P also increases by10% ii) A monetary expansion leads to a lower output and a higher interest rate. iii) Equilibrium in the financial market implies that an increase in income leads to a decrease ininterest rate making the LM curve downward sloping. c) Assume a model economy with the following parameters:C= 100 + 0.25 YD ; I= 100 + 0.5Y - 3000iG= 125 ; T= 100 ;(M/P)d = 6Y - 24000i ; (M/P)s = 4500Derive the IS and LM relation. 2) The short and medium run a) Suppose that the mark-up of goods prices over marginal…
1. Assume that a country’s economy is in a short-run equilibrium and the actual unemployment rate is lower thanthe natural rate of unemployment.(a) Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve,and aggregate demand curve, show each of the following.(i) Current price level, labeled PL1, and current output level, labeled (b) What open-market operation can the country’s central bank use to move the economy toward its long-runequilibrium?(c) Use a correctly labeled money-market graph to show how the country’s central bank action to move theeconomy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run.(d) Based on the interest rate change from part (c), will each of the following increase, decrease, or remain thesame in the short run?(i) Real output. Explain.(e) Assume instead that the central bank does not pursue the monetary policy action from part (b) and there wasno other government…
Suppose two countries have identical aggregate demandcurves and potential levels of output, and g is the samein both countries. Assume that in 2019, both countriesare hit with the same negative supply shock. Given thetable of values below for inflation in each country, whatcan you say, if anything, about the credibility of eachcountry’s central bank? Explain your answer.Country A Country B2018 3.0% 3.0%2019 3.8% 5.5%2020 3.5% 5.0%2021 3.2% 4.3%2022 3.0% 3.8%
Suppose the economywide demand for money is given by: M = P(0.2Y – 25,000i). The price level Pequals 3, and real output Y equals 8,000. At what value should the Fed set the nominal money supply if it wants to set the nominal interestrate at 2 percent?