The change in the velocity of circulation may be occurring because the ________. A. growth rate of the quantity of money is less than the growth rate of nominal GDP B. growth rate of the quantity of money is greater than the growth rate of real GDP C. real interest rate is greater than the nominal interest rate D. growth rate of the quantity of money is greater than the growth rate of nominal GDP

The change in the velocity of circulation may be occurring because the ________. A. growth rate of the quantity of money is less than the growth rate of nominal GDP B. growth rate of the quantity of money is greater than the growth rate of real GDP C. real interest rate is greater than the nominal interest rate D. growth rate of the quantity of money is greater than the growth rate of nominal GDP

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 5CQQ

See similar textbooks

Similar questions

. Let real GDP growth-2.4% per year, money growth-5% per year, nominal interest rate 4.8% and velocity of money-constant. (a) Find the inflation rate, the real interest rate, and the cost of holding money.
Assume GDP is currently $12,800 billion per year and the quantity of money is $512 billion. What is the velocity of money? (4) The nation collectively holds enough money to finance how many days, worth of GDP expenditure? (4)
a Imagine an economy has the following situation: Velocity of money (V) is constant, Nominal Money Supply (M) growth is 8%, Output (Y) growth is 4% and real interest rate (r) is 4%. Calculate the following: i. Nominal interest rate (i) ii. If State Bank of Pakistan (SBP) increases the money growth rate by 2 percent point per year, find Δi? iii. If the growth rate of Y decreases to 2% per annum, what will happen to the inflation rate (π)?
QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
2. Answer the following questions. 2.1 One good: barley. The economy has enough labor, capital, and land to produce Y = 800 bushels of barley. V is constant. In 2020, money supply (MS) = $2,000 P = $10/bushel. For 2021, the central bank increases MS by 10%. According to the quantity equation, compute the 2021 values of nominal GDP and P. Compute the inflation rate for 2020–2021. 2.2 If you deposit money in the bank for one year. Scenario 1: nominal interest rate = 10%, inflation rate = 0% Scenario 2: nominal interest rate = 25%, inflation rate = 15% In which scenario does the real value of your deposit grow the most? Explain. 2.3 Inflation distorts relative prices. What does this mean and why does it impose a cost on society?
4the money supply in freedonia this year is $150 billion Nominal GDP is $750 billions and real GDP is $250 billion. assuming that velocity of money is stable real GDP grows by 2%this year and the money supply does not change. what are the velocity price level and inflation rate
1. Suppose a country A’s nominal GDP in 2019 is $15 trillion, and the consumer price index in 2019 is 200. A’s nominal GDP in 2018 is $10 trillion, and the price index in 2018 is 190. What is the nominal GDP growth rate, real GDP growth rate, and inflation rate in 2019? 2. Suppose an economy in which real GDP is 1000, the velocity of money is 10, and the quantity of money (M1) is 1500. How much will the price level change if the velocity of money rises to 12?(Hint: think about the equation of exchange).
Consider an economy in which the money supply consists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation all are constant at 10% per year. Output and the real interest rate are constant. Monetary data for this economy as of January 1, 2016, are as follows: Currency held by nonbank public $200 Bank reserves $50 Monetary base $250 Deposits $600 Money supply $800 a. What is the nominal value of seignorage over the year? (Hint: How much monetary base is created during the year?) b. Suppose that deposits and bank reserves pay no interest, and that banks lend deposits not held as reserves at the market rate of interest. Who pays the inflation tax (measured in nominal terms), and how much do they pay? (Hint: The inflation tax paid by banks in this example is negative.) c. Suppose that deposits pay a market rate of interest. Who pays the inflation tax, and how much do they pay?
In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500bushels of wheat (Y or real GDP). Price of wheat and money supply are $2 per bushel and $1,000respectively. In 2020, the central bank increases money supply by $ 1040. Suppose both the velocity ofmoney (V) and the amount of wheat produced remain unchanged. a. Compute the velocity of money and nominal GDP in 2019. b. Calculate inflation rate in year 2020. c. Use a well-labelled money supply-demand diagram to illustrate and explain what happen to the pricelevel and the value of money after such money injection?
Assume GDP is currently $10,800 billion per year and the quantity of money is $540 billion. a. What is the velocity of money?
3 In Friedman's theory, money demand is a function of a. average past income, current inflation, return on bonds, return on equities b. permanent income, expected inflation, return on money, return on bonds, return on equities c. return on bonds, return on inflation, return on equities, return on stock d. current income, expected inflation, return on money, return on bonds, return on equities