To say that the relationship between the velocity of money and the opportunity cost of holding money is not stable is the same as saying Multiple Choice the money market is always in disequilibrium
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- The quantity theory of money: What is the key endogenous variable in the quan-tity theory? Explain the efect on this key variable of the following changes: (a) Te money supply is doubled.(b) Te velocity of money increases by 10%.(c) Real GDP rises by 2%.(d) Te money supply increases by 3% while real GDP rises by 3% at thesame timeDescribe the difference betweenan exogenous and an endogenous theory about the money supply.In your view what importantdifferences between the twotheories exist?Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.2. Assume that a particular bank has excess reserves of Php800,000 and checkabledeposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank’sactual reserves?3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider thefollowing transactions: Owners of the bank sold shares of stocks to the public (which includes owners’equity) amounting to P1,000,000. To fully…
- Suppose that when everyone wakes up tomorrow, they discover that thegovernment has given them an additional amount of money equal to the amountthey already had. Explain what effect this doubling of the money supply willlikely have on the following:a. The total amount spent on goods and servicesb. The quantity of goods and services purchased if prices are stickyc. The prices of goods and services if prices can adjust?Economics To increase the money supply, what could the Federal Reserve do? Choose one or more: OA. make an open market sale OB. decrease the discount rate O Cincrease income taxes OD. increase the discount rate O E. make an open market purchaseSuppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?
- Now, consider an economy in which the demand for money is of the formY(1 + it)for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The REAL INTEREST RATE, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the 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. Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1,M1 / P1, and, E1π2. B. Find the inflation rate, nominal interest rate, real money balance in period 2,and expected inflation in period 3, given the information available in period 2. (π2, i2, M2 / P2 and E2π3.) C. Find the inflation rate, nominal interest rate, and real money…Now, consider an economy in which the demand for money is of the formY / (1 + it) for t = 0, 1, 2, · · · , where output is 150 and it denotes the nominal interest rate inperiod t. The real interest rate, denoted r, is constant and equal to 4%. In period0 and 1, the money supply is 100 and people expect that money supply wouldbe 100 forever. People have rational expectations. In period 2, the central banksurprises people and sets the 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 . Find the inflation rate, nominal interest rate, real money balance in period 1,and expected inflation in period 2, given the information available in period1, π1, i1, M1 / P1 and, E1π2. B . Find the inflation rate, nominal interest rate, real money balance in period 2, and expected inflation in period 3, given the information available in period 2, π2, i2, M2 / P2 and E2π3. C . Compare E1π2 and π2.Pls help with this Suppose that the Central Bank has currently set the reserve requirements in the economy to be equal to 10%. Assume that there is no cash drain. Suppose also that in this economy there are $400 in initial deposits and $6,000 of cash. 6. Given the above, what is the total Money Supply (MS) in the economy?Now suppose that the economy’s demand for money (MD) is given by the following equation: ??=12,000−1,000∗rWhere r is the interest rate in integers (e.g. at a 2% interest rate, r = 2). 7. What is the equilibrium quantity of money (M) and interest rate (r) in this economy? Now suppose that the Central Bank wants to close an output gap in the economy, and wants to raise the interest rate by 2% to do this. Assume that the Central Bank targets the Money Supply directly. 8) If the Central Bank wants to change the Money Supply by changing the quantity of cash in the market in order to achieve this interest rate increase, how much does it need to change the quantity of cash?…
- estion list uestion 11 question 12 uestion 13 estion 14 estion 15 estion 16 K Suppose the Bank of Canada increases the quantity of money. Complete the sentences. market determines the real interest rate. adjusts to make the quantity of real money supplied equal to the quantity demanded. In the long run, supply and demand in the The money; inflation rate loanable funds; nominal interest rate O A. OB. OC. loanable funds; price level O D. money; bond price usic V makes aun | Aujla RE- sew Mus RAC HA A CDemand for money is given by the following equation: Md = 0.3y – 8r. If the actual output is decreased by $200,000, then the demand curve for money will shift: and a) direction (to the right/left; b) amountThe supply of credit cards is given by q = 1400X, where X are real credit card balances, q isthe real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)and P = 100. Answer the following questions about this:(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (realoutput).(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.How much is the inflation rate as a result? Explain and justify your answer. (c) Further suppose that at the same time, real output, Y , increases by 10%. Now what isthe inflation rate? Does our quantity theory of money hold here? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
