MV = PQ = 2 Q = 1000 (Quantity of Money in circulation) x (Velocity of money) Velocity is equal to 2 and is constant Output is equal to 1000 and the economy is at full employment = (Price) x (Real outp
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- In a hyperinflationary economy, monetary items: a. Are not restated because they are already expressed in terms of the measuring unit current at year-end b. Are measured at fair value c. Are restated applying the general price index d. Are restated applying the specific price indexTrue or false. The basic quantity equation of money is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real output of the economy. True or false.Suppose real GDP is equal to $100 trillion, the money supply is equal to $50 trillion and the price level is equal to 2. In this case, the velocity of money is equal to ________.
- Examine the following expression and analyze it:Unforeseen high inflation redistributes society's income, diminishes the ability to make long-term plans, and forces individuals, government, and businesses to carefully assess the purchasing power of their assets.Compute nominal GDP if velocity remains constant at 5 and the money supply increases from GHS200bn to GHS300bnd) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.
- The demand for real money balances is given by , where M is the quantity of money, P is the price level, Y is output, and i is the nominal interest rate which is measured in percent. At the beginning of the year, the nominal interest rate is 5%. Over the year, the monetary base increases by 4%, the money multiplier increases by 2%, the output increases by 1% percent, and the nominal interest rate decreases by 10 BASIS POINTS. (a) If the ex ante real interest rate equals 0.5%, find the expected inflation rate at the beginning of the year. (b) Calculate the percentage change in the velocity of money. (c) [In answering this question, you are allowed to use the approximations regarding percentage changes; see page 4 of the math review (slide set 3).] Calculate the actual inflation rate. (d) Is it true that purchasing power was transferred from lenders to borrowers?If for a certain economy the growth rate of the money supply is 3%, the growth rate of the velocity of money then the quantity theory of money is 1%, the rate of inflation is 2.5%, and the real growth rate is holds. 1.5% 0.5% 4.5% 6.5%Assuming that the aggregate supply in a given economy increases by 7.5 percent, whereas the velocity of circulation of money is fixed. If the targeted rate of inflation in the economy is 9.8, estimate what should be the percentage money supply, given that inflation is only a monetary phenomenon.
- A country has a total population of 79 million. The labour force in the country amounts to 47 million people. The current unemployment rate is 3.95%. The natural rate of unemployment is 4.2%. The marginal propensity to consume is 0.75. The current reserve ratio, which is applicable to all banks, is 6%. All banks tend to hold excess reserves of 3%. The current GDP deflator is 117. The current level of the consumer price index is 109. The intercept of the consumption function is 5200. The level of government expenditure is 6000. Potential GDP is at 43,000. Fixed taxes are at 3000. The economy is a closed economy. The level of investment is 2500. Transfer payments are at 3000. By how much should fixed taxes be changed in order to fix the GDP gap in this country? Selected Answer: Raise fixed taxes by approximately $700. Answers: Raise fixed taxes by approximately $933. Raise fixed taxes by approximately $700. Lower fixed taxes by approximately…True or false 1- Frictional unemployment has a long-term nature. 2- It is a must to have a double coincidence of wants between buyers and sellers to apply barter. 3- Commodity money refers to money without intrinsic value. 4- Central bank is an institution that oversees the banking system and regulates the money supply.Suppose that the nominal interest rate is zero; that is, R = 0 . (a) What is the equilibrium quantity of credit card balances? (b) In what sense does the economy run more efficiently with R = 0 than with R > 0 ? (c) Explain your results in parts (a) and (b). Discuss the realism of these predictions.
