E. Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?

Q: What tools does the Feds use to control money supply? List and briefly describe each. How are those…

A: The discount rate, reserve ratios, open market operations, and interest on reserves are four…

Q: Consider the economy described in question 2. If the Fed sells $50 of government bonds than money…

A: The money supply can be defined as a measurement of the total amount of money in circulation.  The…

Q: If velocity is constant at 10 and the money supply decreases from $1,800 billion to $1,400 billion,…

A: We know that fisher equation of exchange is  MV = PT  Where M - Money supply  V - Velocity = 10  P -…

Q: In the country of Sparta, money supply equals 13 million drams, real GDP is 65 million drams, the…

A: Nominal GDP is calculated by taking the multiplication of real GDP and the price level. Thus,…

Q: The banking system currently has $100 billion of reserves, none of which are excess. People hold…

A: Reserve ratio is the proportion of deposits that banks have to hold with themselves instead of…

Q: If the money multiplier is determined to have a value of 5 and the Fed wants to increase the money…

A: The total value of money available in an economy at a point in time that is supplied by the central…

Q: The velocity of money in the small Republic of Sloagia is always the same. Last year, the money…

A: Here we calculate the following terms by using the given information , so the calculation of the…

Q: Suppose the current inflation rate is 5.8%, real gdp is $22.5 trillion and potential real gdp is $22…

A: The economies tend to have a limit to the amount of resources with them, while the wants and demand…

Q: Suppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP is 3 percent…

A: The Taylor rule helps in stabilizing the economy. It says that when the inflation or growth rate of…

Q: Discuss why the money supply curve is vertical.

A: Money Supply refers to the total amount of money held by the public at a particular point of time in…

Q: According to the quantity theory of money, if the long-run economic growth rate is 2.5%, by how much…

A: The quantity theory of money denotes the relationship between money supply, price level, velocity…

Q: All other things being equal, by how much will nominal GDP expand if the central bank increases the…

A: The overall price level of products and services is proportional to the money supply in an economy,…

Q: Suppose that this year, the money supply grows by 6%, velocity increases by 1%, and real GDP…

A: By definition, we assume that the growth rate of price level is the inflation rate. growth rate of…

Q: The monetarists believe that interest rates can move in the opposite direction from the conventional…

A: Answer-Need to find- The monetarists believe that interest rates can move in the opposite direction…

Q: If the Fed wants to increase the money supply, it can a)raise income tax rates b) buy bonds in…

A: Money supply- It is the total stock of money circulated in an economy.

Q: happens to nominal GDP if the money supply grows by 20% but velocity declines by 27%? Nominal GDP…

A: Equation of Exchange is  MV =PY where M is money supply  V is velocity P is price level Y is real…

Q: Describe the tools used by the Fed since March 2020, including some new non-traditional tools. What…

A: The economic downturn precipitated by the US coronavirus epidemic led to the closure of numerous…

Q: In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7…

A: Money Supply All money supply - cash, foreign exchange and bank accounts - is in circulation. For…

Q: This action by the Fed causes the money supply to by S billion. (Round your response to two decimal…

A: The formulae for the money multiplier(m) is: ∆M=∆R×1RR+ER Where  is the change in the supply of…

Q: Carefully explain how the Federal Reserve (Fed) will use each of the three monetary policy tools at…

A: The monetary authority of a country's policy is to manage either the interest rate charged on very…

Q: Suppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP falls 2…

A: The inflation rate is the rise in the aggregate price level. The federal funds rate is the rate at…

Q: Explain the role of reverse repo rate in controlling the money supply in economy

A: According to the given question Money supply basically refers to the amount of the total stock of…

Q: From 2020 to 2021, the Bank of Canada started the Corporate Bond Purchase Program, an attempt to…

A: The entire amount of money owned by the public at a given period in time in an economy is referred…

Q: Suppose the velocity of money is 10 transactions per year, the price level for 2015 is $6, and real…

A: According to the quantity theory of money: MV = PY Where M is money supply V is velocity P is price…

Q: If real GDP is $40 billion, the price level 30, and the velocity of money is 24, what does the…

A: Given data: Real GDP is $40 billion. Price level is 30. Velocity of money is 24.

Q: We would expect that the level of income that would equate total demand for and total supply of…

A: In an economy, A general equilibrium level is one that is  obtained by equation demand and slide of…

Q: . What is the opportunity cost of holding money? How is k related to the velocity of money? . Use…

A: The answer and explanation for both these parts is as follows:-

Q: 25. Show in a graph how the Fed essentially chooses a monetary rule that creates a flat effective…

A: The Fed's role has evolved, and it now primarily manages the growth of bank reserves and the money…

Q: Discuss the importance of monetary base to the overall money supply.

A: Money supply includes all liquidated instruments and currency in form of deposits and cash being…

Q: If the Fed wants to increase the money supply, it will ______ Treasury bonds. A) buy B) sell C) hold…

A: The correct option is A.

Q: Suppose that the money demand function is (M/P)d = 1,000 − 100r, where r is the interest rate in…

A: Given: Money supply (M)= 1000 Price level (P)=2 Interest rate (r)=7%=0.07 Money demand function is:…

Q: Kindly help with the questions below. (1). If the growth rate of the  money supply increases to 18%…

A: According to the quantity theory of money: M x V = P x Y [M: Money supply, V: Velocity, P: Price…

Q: Need help with this. If nominal GDP is $100 and the money supply is $25 then money velocity is?

A: Introduction The money velocity is a measurement of how many times an average unit of currency is…

Q: Consider a situation where the central bank increases the money supply. All other things being…

A: We know that the quantity theory of money explains that the quantity of money is the primary…

Q: Suppose that the money supply will grow by 2% in Japan over the next five years. Velocity is…

A: Given: Growth in money supply=2% Velocity=constant Growth in real income=3%

Q: Suppose that inflation is high and quite unpredictable in a given country. Explain how this…

A: Quantity equation states that M x V = P x Y, or Change in M + Change in V = Change in P (inflation)…

Q: Suppose that initially the money supply is $1 trillion, the price level equals 3, the real GDP is $5…

A: Answer: Given, Money supply (M)= $1 trillion Price level (P) = 3 Real GDP (Y)= $5 trillion The…

Q: Suppose that the government increases its spending. What monetary policy should the Fed adopt…

A: The government of the economy uses fiscal policy in order to stabilize the economy when the economy…

Q: Suppose that initially the money supply is $2 trillion, the price level equals 4, the real GDP is $6…

A: M * V = P * Y Where, M = Money suppl V = Velocity of money P =  Price level Y = Real GDP

Q: The Federal Reserve announced a reduction in the federal funds interest rate to the level close to…

A: Changing the Federal-Fund-Rate(FFR) is one pathway through which the federal reserve enacts its…

Q: Suppose the economy is in long-run equilibrium, as shown on the following graph. Now suppose a wave…

A: When there is business pessimism in the economy then the spirit will be negative and hence aggregate…