According to neo-classical economics, if velocity is constant, the value of money falls when: Oa. Either money demand or money supply shifts right b.Money demand shifts left or money supply shifts right Oc Either money demand or money supply shifts left Od. Money demand shifts right or money supply shifts left
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- Some economics, notably Keynesians, believe that _______________.Group of answer choices A. since both V and Q are constants for an economy in short-run equilibrium, the equation of exchange becomes the quantity theory of money which explains prices B. even though velocity isnt constant, it is predictable C. If a change in M occurs, it may not only affect P, but also and at the same time affect QIf the money supply increases by 50%, then in the long run, we can assume that _____ A. Both inflation and real GDP will increase B.The price level will increase by about 50% C. Velocity may adjust in response to the influx of cash D.Any of the above are possibleThe classical principle of monetary neutrality statesthat changes in the money supply do not influence_________ variables, and it is thought mostapplicable in the _________ run.a. nominal; shortb. nominal; longc. real; shortd. real; long
- Assume the money supply is $300, the velocity of money is 5, and the price level is 1. Using the quantity theory of money: a. Determine the level of real output. b. Determine the level of nominal output. c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent? Real output would be $C, and real output would be $|If velocity and aggregate output are reasonably constant(as the classical economists believed), what will happento the price level when the money supply increasesfrom $1 trillion to $4 trillion?The economy of Macro Island is described by the quantity equation with constant velocity. All residents of Macro Island understand the quantity theory and use it to form their expectations of inflation. Real income grows at a steady 2 percent per year, and the nominal interest rate is 5 percent. In one year, people had expected the money supply to grow by 4 percent, but in fact it grew by only 3 percent. a. What was the inflation rate? (3% 4% 1% 2%) b. What was the expected inflation rate? (1% 4% 3% 2%) c. What was the ex ante real interest rate? (4% 2% 1% 3%) d. What was the ex post real interest rate? (2% 1% 4% 3%) e. Did the deviation of inflation from what was expected hurt creditors or debtors? ( Creditors Debtors)
- consider an economy in which the demand for money is of the formY / (1 + it)for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate in period t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the money supply will grow at 2 percent forever, that is,M0 = 100, M1 = 100, M2 = (1.02)M1, M3 = (1.02)M2, and so on. A. Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1/P1 and, E1π2. B. Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period2, π2, i2, M2 / P2 and, E2π3. C. Find the inflation rate, nominal interest rate, and real money…It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we assume that velocity is contant, 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 equalVelocity is: Select one: a. Money supply is the primary determinant of both short-run movements in nominal GDP and long-run movements in prices. b. Measured as the ratio of nominal GDP to the stock of money. C. Keynesian theories hold that many other forces besides money also affect aggregate demand. d. The rate at which money circulates through the economy.
- Assume an economy’s annual money velocity in circulation is 10. Please answer the following two question: In the view of monetarists (i.e. neoclassical view), if the annual economic growth rate is 6%, what should be the money supply increasing rate to maintain a low inflation rate as 3%? Please show equation.It is not possible for the total value of production to increase unless the money supply also increases. After all, how can the value of the goods and services being bought and sold increase unless there is more money available.explain the assertion using the equation M = money supply, V = velocity of money, P = price level, Y = real GDP.All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 2.3?(Enter your answer in billions of dollars. That is, if you find an expansion of 1 billion enter 1 for your answer.)