You are the head of the central bank and you want to maintain 2 percent long-run inflation. Velocity is constant. Real GDP growth is initially 2 percent and money growth is initially 4 percent. GDP growth rises to 3 percent. To meet the inflation target, based on the quantity theory of money, you suggest raising the growth rate of money supply to a) 5 percent interest rate b) 5 percent money supply growth c) 1 percent money supply growth d) 0 percent money supply growth e) 1 percent interest rate

You are the head of the central bank and you want to maintain 2 percent long-run inflation. Velocity is constant. Real GDP growth is initially 2 percent and money growth is initially 4 percent. GDP growth rises to 3 percent. To meet the inflation target, based on the quantity theory of money, you suggest raising the growth rate of money supply to a) 5 percent interest rate b) 5 percent money supply growth c) 1 percent money supply growth d) 0 percent money supply growth e) 1 percent interest rate

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section: Chapter Questions

Problem 15SQ

See similar textbooks

Similar questions

If GDP is 1,500 and the money supply is 400, what is velocity?
You are the head of the central bank and you want to maintain 0 percent long-run inflation. You use the quantity theory of money. Suppose long-run real GDP growth falls from 3 percent to 2 percent. Velocity is constant and initially inflation is 0. The quantity theory suggests you should: a) raise velocity b) choose a 0 percent money supply growth c) lower the growth of money supply to 2 percent d) raise the growth rate of money supply to 2 percent.
Consider a situation where the central bank increases the money supply. All other things being equal, if nominal GDP increased by $800 billion during a time when velocity was 4, by how much did the central bank increase the money supply? $200 million $400 million $400 billion $200 billion
According to the quantity theory of money, (a) Increases in the money supply will lead to inflation, ceteris paribus (b) The level of inflation is independent of the money supply (c) The money supply times the velocity equals the real GDP (d) When real GDP rises, the money supply must fall by the same proportion (e) The velocity of money is assumed to fluctuate widely over time
Which one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidence
Question 2 a According to the quantity theory of money, if nominal GDP is $800, real GDP is $600, and money supply is $400, then Select one: a. the price level is ¾, and velocity is 2. b. the price level is 2/3, and velocity is 2. c. the price level is 1.33, and velocity is 2. d. the price level is 1.33, and velocity is 1.5. e. the price level is 1.33, and velocity is 1.4. Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
21.According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A)the Organization of Petroleum Exporting Countries (OPEC). B)the U.S. Treasury. C)the Federal Reserve. D)private citizens. 22.According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A)increasing. B)decreasing. C)7 percent. D)constant. 23.If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A)3 B)4 C)9 D)11 24.Percentage change in P is approximately equal to the percentage change in: A)M. B)M minus percentage change in Y. C)M minus percentage change in Y plus percentage change in velocity. D)M minus…
Consider the following scenario: a. In Argentina, the central bank needs to determine by how much to increase the money supply next year. Suppose they estimate an increase in the overall economic activity (real GDP) of 2.5% percent and have a target inflation rate of 4%. The velocity of money has been observed to be constant over the past many years. By what level should the central bank change the money supply to achieve its inflation target? b. Next year, the central bank of Argentina wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply? c. What is an "inflation tax", and how might it explain the creation of inflation by a central bank?