Suppose the money demand function is Md P = 500+ 0.1Y - 500i a) Calculate velocity if Y = 1000, r = 0.12, and 7t e = 0.08 b) If the money supply (Ms) is 2000, what is the price level?
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- Compute nominal GDP if velocity remains constant at 5 and the money supply increases from GHS200bn to GHS300bnIf the Fed lowers the federal funds rate, the first effect in an AS/AD figure is a ________ shift of the ________ curve. a. rightward; AD b. leftward; AD c. rightward; SAS d. leftward; SASHow would a doubling of velocity affect Real and Nominal GDP, assuming the money supply doesn’t change
- 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 QWhy is Keynes’s analysis of the speculative demand formoney important to his view that velocity will undergo substantial fluctuations and thus cannot be treated as constant?What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?
- Chapter 14, Problem 5, p. 530. (not answered) In the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks? Use diagrams and explain your results. (a) There is a shift in money demand. (b) Total factor productivity is expected to decrease in the future. (c) Total factor productivity decreases in the present Chapter 14, Problem 6, p. 530. (not answered) In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap. (a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform…"According to Keynesian theory, an increase in the money supply can cause interest rates to fall without affecting nominal income. In this case, how does the velocity of money change? Explain and demonstrate using the money market graph."Can you please help with the explanation of the below? In contemporary monetary theory, we do not normally think of using a money stock to implement monetary policy. By setting m-p, the log of the real money stock, equal to money demand y-b.i where y and i are ln(GDP) and the interest rate, create a money policy reaction function. Noting that p+y is the log of nominal GDP how could you interpret m in this case so as to make your equation approximate the reality in Australia?
- Because inflation targeting focuses on achieving theinflation target, it will lead to excessive output fluctuations.” Is this statement true, false, or uncertain? Explain.Using the fed model linking the IS-MP Framework with the philips curve,draw a graph that illustrate the following scenario. Expected inflation is 1.5%. The economy is initially in macroeconomic equillibrium with a real intrest rate of 3% . An output gap of -1% and an actual inflation rate of 1%.Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.