Suppose that the money demand function is (M/P)d = 800-50r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is fixed at 5. a. Graph the supply and demand for real money balances. b. What is the equilibrium interest rate?
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2. Suppose that the money demand function is (M/P)d = 800-50r,
where r is the interest rate in percent. The money supply M is 2,000 and the price level P is fixed at 5.
a. Graph the
b. What is the equilibrium interest rate?
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- Assume the money supply is $1,000, the velocity of money is 12, and the price level is $4. 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 and that the economy is at full-employment equilibrium, what will happen if the money supply rises by 10%?Give typing answer with explanation and conclusion In the long-run, an increase in the money supply causes an increase in which of the following? I. the price level II. real gross domestic product III. the expected price level Group of answer choices A. I, II, and III B. I only C. I and III only D. II only E. III onlySuppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?
- 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?In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule? (Omit the unit and answer with the first decimal place.)Assume that an economy is in long-run equilibrium. Assume consumers wish to hold less money because they use credit cards more frequently to purchase goods and services then cash. (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short-run. (b) Based on the change in the interest rate in part (a), what will happen to each of the following in the short-run? i. Prices of previously issued bonds ii. The price level and real income. Explain. (c) With a constant money supply, based on your answer in b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? (d) If the Central Bank wishes to reverse the change in the interest rate identified in part (a), what open market operation would it use?
- Assume that goods market is always in equilibrium but money market clear sluggishly. Trace out the effect of a decrease in money supply when at the same time government increases the tax rate. Draw the trajectory of both output and interest rate against time (t).Assume that an economy is experiencing an economic contraction and the government decides to reduce taxes and increase government spending to stimulate the economy. By the way, Central Bank keeps money supply constant. i) Evaluate the effect of this policy on the a) Interest Rate , b)Money Demand (in the SHORT-RUN.) Explain and show your answer on the graph. ii)Evaluate the effect of this policy on output and price Level (in the LONG-RUN.) Explain and show your answer on the graph. Note : In figures, please label the axis and show the changes on the graphs using arrows.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.
- In the context of the Money Surprise Model, suppose that there was an unanticipated increase in the money supply. With the use of diagrams, explain the effects of the sudden increase in money supply on employment, the real wage, output, real interest rate, demand for money, and the price level. PLEASE INCLUDE DIAGRAM, thank youIt 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.Within the classical form of the quantity theory, the demand for money is given by Md = kPY. Suppose income (Y) is given at 400 units, and the money supply (M) is fixed at 200 units. Suppose k drops from its initial value of 0.5 to 0.25. What is the initial price level? What is the new price level after the change in k? Explain the process that leads to the change in the aggregate price level.
