ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408738
Author: William A. McEachern
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 9P
Sub- Part
A
To determine
the effect on the demand over time, when the economy’s real GDP is growing.
B
To determine
the effect on the interest rate over time, when the economy’s real GDP is growing.
C
To determine
the effect on the interest rate over time, when the fed changes the money supply in order to match the money demanded.
D
To determine
the effect of the policy as discussed in part c on the stability of the economy over the business cycle.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
9
Question: Consider an economy where the velocity of money is constant, and the economy is at full employment. If the central bank decides to increase the money supply by 5% but at the same time, the government imposes new taxes that effectively remove 5% of the consumers' disposable income, what would be the likely short-term effect on the nominal Gross Domestic Product (GDP) and the general price level? A) Nominal GDP remains unchanged; the general price level increases. B) Nominal GDP increases; the general price level remains unchanged. C) Nominal GDP remains unchanged; the general price level decreases. D) Nominal GDP increases; the general price level increases. Please don't use chatgpt it is giving wrong answer. Please try do it with yourself.
(Please all answer)
Chapter 15 Solutions
ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
Knowledge Booster
Similar questions
- Consider an economy with the following measures: (a) The nominal interest rate is 2%. The rate of growth of money supply is 5%. The velocity growth is constant. What is the growth in nominal GDP? ) In the context of introduction of robots into manufacturing, what is the difference be- (b) tween the productivity effect and the reinstatement effect? (c) thinking about the effect of higher capital income taxes. 3) Briefly describe any two of the three elasticities that Diamond and Saez mention inarrow_forwardINTEREST RATE (Percent) 3 6 Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 18 Money Supply 15 12 0 0 10 20 30 Money Demand 40 50 60 MONEY (Billions of dollars) Money Demand Money Supply Ⓡarrow_forwardQuestion Suppose the Fed tries to prevent the increased government demand for loanable funds from raising interest rates by increasing the supply of loanable funds through and expansion of commercial bank loans. Will this Fed policy succeed in preventing interest rates from rising? At what point will the Fed's expansionary policy step up the inflation rate? How will the expectation of a higher rate of inflation cause interest rates to rise?arrow_forward
- 14. The Opportunity Cost of Holding Assets as Money Suppose you have been told that the opportunity cost of holding wealth as money is determined by the interest rate, but you aren't sure whether this refers to the real interest rate or the nominal interest rate. Suppose the inflation rate is stable at 3%, and you currently have €1,000 in a non-interest-bearing bank account. Consider the decision of whether to hold wealth as money or as an interest-earning asset that pays a nominal rate of 6%. If you hold wealth as an interest-earning asset, you will have in wealth at the end of the year. If you hold the wealth as money, you will have in wealth at the end of the year. Holding wealth as an interest-earning asset therefore gives you more purchasing power than you would have if you held the wealth as money. This illustrates that the relevant interest rate for calculating opportunity cost of holding wealth as money is the interest rate. Now consider the decision of whether to spend your…arrow_forward2-5 Kraft and Cadbury When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value rose, but Kraft’s market value fell by more. What does this tell you about the value-creating potential of the deal? for one of the surgeries has increased by about 10% each year since 1995, whereas the other has increased by only 2% per year. Which of the surgeries has the lower inflation rate? Why?arrow_forward2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…arrow_forward
- N4arrow_forwardOnly typed answer If the inflation rate is 4% per year and the market interest rate is known to be 13% per year, what is the implied real interest (inflation-free) rate in this inflationary economy? The implied real interest (inflation-free) rate is? (Round to two decimal places)arrow_forward8a. Assume the following information. A banker will make a loan to a firm for one year. The real rate of interest of is 2% determined in the Loanable Fund Market and inflation is expected to be 3% over the next year. What nominal interest rate will she charge? b. Now, assume that after the year, the borrower pays back the loan. What is the banker's (realized) real interest rate, if actual inflation during the year is 11%? C. According to the author, what does the example in part b. demonstrate about the economic cost of unanticipated inflation to a society?arrow_forward
- Suppose the money demand function is = 1000 + 0.2Y - 1000 (r + πe). Required (a.) Calculate velocity if Y = 2000, r = 0.06, and πe = 0.04. (b.) If the money supply (Ms) is 2600, what is the price level? (c.) Now suppose the real interest rate rises to 0.11, but Y and Ms are unchanged. What happens to velocity and the price level? (d.) For part (c.), if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year, with Y remaining at 2000, what would the inflation rate be?arrow_forward22 An increase in the price level results in a decline in aggregate demand because higher prices will cause the nominal interest rates to increase and GDP to drop. This effect is called the: Group of answer choices wealth effect. income effect. interest rate effect. trade effect.arrow_forward6arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning