For a very long time the country of Tofu has had an inflation rate of 8 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate could be due to higher money supply growth. We would expect unemployment to be lower. could be due to slower money supply growth. We would expect unenmployment to be lower could be due to higher money supply growth. We would expect unemployment to be higher could be due to slower money supply growth. We would expect unenmployment to be higher

For a very long time the country of Tofu has had an inflation rate of 8 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate could be due to higher money supply growth. We would expect unemployment to be lower. could be due to slower money supply growth. We would expect unenmployment to be lower could be due to higher money supply growth. We would expect unemployment to be higher could be due to slower money supply growth. We would expect unenmployment to be higher

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

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 3? (Use this information as necessary to answer the following 4 questions.)
(a) Calculate each of the following for Year 2. Show your work. (i) Real GIDP per capita for Arturia (il) Real GDP per capita for Ringberg (b) If Arturia and Ringberg have the same velocity of money in Year 2, which nation must have the higher money supply in Year 2? Explain (c) Calculate each of the following in Year 2. Show your work. (i) The inflation rate in Arturia (il) The inflation rate in Ringberg (d) Based on your answer to part (c), if the nominal interest rate is the same for both nations in Year 2, which nation experiences the higher real interest rate in Year 2? Explain. (e) Ringberg produces consumer goods and capital goods. While maintaining full employment, Ringberg decides to allocate more resources to the production of consumer goods. What will be the effect on the long-run economic growth rate in Ringberg? Explain. esc C 1 の

Suppose the monetary authority on Ferenginar wants to know about the relationship between money growth and inflation. You decide to use the Quantity Theory of Money in terms of percentage changes, which is given by%∆Mt + %∆Vt = πt + %∆yt (a) Suppose the income elasticity of demand for money is equal to 1, andoutput is independent of monetary policy. If %∆Mt=5%, what is inflation (πt)? (b) Suppose that the income elasticity of demand for money is 1, and output is not independent of monetary policy. If Inflation is 3%, and %∆Mtis 2%, what is output
Some economists argue that suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.
Consider two countries, A and B. In A, new technologies (e.g., mobile payment apps and cryptocurrencies) have been enthusiastically adopted by the population, thereby reducing the proportion ofincome that is held as real money balances. Over this period, no such changes occurred in B. Ifthe rate of money growth and the growth rate of real GDP were the same in A and B over thisperiod, then how would the rate of inflation differ between the two countries?
How does an increase in money supply lin an economy lead to demand-pull inflation?
Suppose that a country’s inflation rate increasessharply. What happens to the inflation tax on theholders of money? Why is wealth held in savingsaccounts not subject to a change in the inflationtax? Can you think of any way in which holders ofsavings accounts are hurt by the increase in inflation?
The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by implementing an expansionary monetary policy, causing the M2 money supply to rise from$15.3trillion in December 2019 to$18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should the inflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the Fed’s monetary expansion?
Money demand equation for a country is given by the equation (MP)d=e−λ(πe+r)+αY where πe is expected inflation, r is the real interest rate and Y is income. We assume that expected inflation equals actual inflation and also r and Y are considered as constant. Find the optimal level of inflation (π∗)which maximizes seigniorage revenue (S) ?
Consider an economy in which the demand for money is of the formMt =(1/v) PtYfor t = 0, 1, 2, · · · , where output is 150, the money velocity is 1.5. The money supplyis 100 for t = 0, 1. In period 2, the central bank surprises people and announcethat 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. What is the inflation rate in period 1, π1? What is real money balance in period 1, M1 / P1? What is the expected inflation in period 2, given the informationavailable in period 1, E1π2? b. What is the inflation rate in period 2, π2? What is real money balance inperiod 2, M2/P2? What is expected inflation in period 3, given the informationavailable in period 2, E2π3? c. 4. Compare E1π2 and π2.
1. Supposeyouhave$200,000inabanktermaccount.Youearn5%interestper annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses.2. TheAustralianBureauofStatistics(ABS)reportedinMay2017thatthecivilian population in Australia over 15 years of age was 20.8 million.Of this population of 20.8 million Australians, 13.5 million were employed and 0.7 million were unemployed.Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force? Also, with examples examine the causes of structural unemployment in Australia.
Most central banks, like the Bank of England, set targets for their economy's inflation rate. The Bank of England has an inflation target of 3.5% per year. According to the Quantity Theory of Money, by how much must the Bank of England grow the money stock in order to hit its inflation target? The Bank of England must decrease the money stock by 3.5% per year. The Bank of England must increase the money stock by 3.5% per year. The Bank of England must decrease the money stock by 3.5% per month. The Bank of England must increase the money stock by 3.5% per month.