Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 15, Problem 8NP
a)
To determine
To plot:Graphical representation of inflation rates.
b)
To determine
Inflation rate that maximizes seignorage.
c)
To determine
Maximum amount of seignorage revenue.
d)
To determine
Graphical representation of inflation rates, maximum value of inflation and revenue when Y = 1000 and r 0.08.
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Students have asked these similar questions
Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1.
A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)?
B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)?
C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value?
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.
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.
INTEREST RATE
100
5
m
2
1
0
0
5
Money Supply
Money Demand
10
15
20
MONEY (Billions of dollars)
25
30
Money Demand
Money Supply
(?)
Assume
that the money supply in an economy is $900 million, the velocity of money is constant at 5, and the price per unit of output is $3. What is the real and the nominal GDP?
The real GDP is $1,500 million, and the nominal GDP is $3,500 million.
The real GDP is $1,600 million, and the nominal GDP is $4,500 million.
The real GDP is $4,500 million, and the nominal GDP is $1,500 million.
The real GDP is $1,500 million, and the nominal GDP is $4,500 million.
The real GDP is $3,500 million, and the nominal GDP is $700 million.
Chapter 15 Solutions
Macroeconomics (9th Edition)
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Similar questions
- Suppose that the nominal interest rate is zero, that is, R= 0. a. In this case, in terms of real income Y and the price level P, the real equilibrium quantity of credit card balances isarrow_forwardAnswer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. If nominal GDP is $300 and the supply of money is $210, the equilibrium interest rate will be Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 Multiple Choice 4 percent. 6 percent. 10 percent. 2 percent. 8 percentarrow_forwardThe 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.arrow_forward
- The graph shows a demand for money curve. Draw a new demand for money curve that shows the effect of an increase in real GDP. Label it MD₁. Draw a demand for money curve that shows the effect of an increase in the number of families that have a credit card. Draw this demand for money curve in relation to the original demand for money curve, MD. Label the new curve MD2. 12- 10- 8- Nominal interest rate (percent per year) 6- 4- 2- 0 2 4 6 8 MD 10 12 ☑ Quantity of money (trillions of dollars) >>> Draw only the objects specified in the question.arrow_forwardAssume that a government cuts its expenditure and therefore runs a public-sector surplus. What will this mean for the equilibrium national income? What will this mean for the demand for money and to interest rates? Under what circumstances will it lead to a (i) decrease in money supply, and (ii) no change in money supply? What effect will each of the two scenarios in (III) will have on the rate of interest rate compared with its original level?arrow_forwardExplain how an increase in government expenditure can affect the goods market and moneymarket by taking the link between the two markets into account.arrow_forward
- Both graphs show a demand for money curve. In the left graph, draw a point to show the quantity of money demanded when the interest rate is 5 percent. Show the effect of an increase in the nominal interest rate. Draw either an arrow along the curve showing the direction of change, or a new demand for money curve. In the right graph, draw a point to show the quantity of money demanded when the interest rate is 5 percent. Show the effect of an increase in real GDP. Draw either an arrow along the curve showing the direction of change, or a new demand for money curve. >>> Dra only the objects specified in the question. Interest rate (percent per year) 6.5- 6.0- 5.5- 5.0- 4.5- 4.0- MDO 3.5+ 2.7 2.8 2.9 3.0 3.1 3.2 3.3 Real money (trillions of 2009 dollars) Q 6.5 6.0- 5.5- 5.0- 4.5- 4.0- Interest rate (percent per year) MDO 3.5+ 2.7 2.8 2.9 3.0 3.1 3.2 3.3 Real money (trillions of 2009 dollars) Qarrow_forwardThe demand for money is given by MD=Y 10000r where Y is the GDP and r is the real interest rate. The supply of money is set by the Central Bank to Mg = 1000. Equilibrium in the money market happens when Mp = Ms. D Find the equilibrium GDP in the money market by solving the system MD=Y - 10000r 1000 Ms MD = Ms for Y, MD and Ms. Note that your solution for Y will depend on r! - (3) (4) (5).arrow_forwardUse the diagrams below to answer the following questions. Figure 27-5 Interest Rate Price Level 5% 4% 2% 1% 105 102 100 500 540 754 800 806 M Mo Quantity of Money (5) ADI AD Real GDP (Shillo)arrow_forward
- Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. INTEREST RATE 12 10 8 2 0 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 = Money Demand Money Supply ? Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for the impact of the increase…arrow_forwardSuppose Singsville National Bank lends money to Ari at 1.5% interest. If inflation is 1%, calculate the real interest rate that Ari pays for the loan.Did Singsville National Bank lose or earn money in this exchange?arrow_forwardConsider the money market in the accompanying graph. Initially, the equilibrium interest rate and quantity are represented by the point, El. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2. After this recent change in the money supply, what is true about the point E1? The quantity of money demanded is more than the quantity of money supplied. The quantity of money demanded is less than the quantity of money supplied. The quantity of money supplied is more than the quantity of money demanded. Those selling interest-bearing nonmonetary assets will face market pressure to lower their interest rates. Interest rate (%) Incorrect 10 9 8 7 6 5 4 3 2 1 0 0 1 2 E2 Money Market EI 3 4 5 6 Quantity of money 7 8 MS MD 9 10arrow_forward
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