Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 1QCMC
To determine
Nominal and real variables and money neutrality.
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The classical principle of monetary neutrality statesthat changes in the money supply do not influence_________ variables, and it is thought mostapplicable in the _________ run.a. nominal; shortb. nominal; longc. real; shortd. real; long
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Compare and contrast n the Classical, Keynesian and Monetarists view of monetary policy. Include in the analysis if monetary policy is thought to be effective by all schools. Furthermore, what role does money play in the economy? What is the source of inflation?
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Principles of Macroeconomics (MindTap Course List)
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- Which term below describes the situation in which consumers fight higher than normal inflation by withdrawing funds from banks more often than usual and spending the money, rather than holding in banks? a. Shoeleather costs b. Nominal variables c. Fisher effects d. Menu costsarrow_forwardThe classical dichotomy and the neutrality of money The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Janet spends all of her money on paperback novels and beignets. In 2014, she earned $14.00 per hour, the price of a paperback novel was $7.00, and the price of a beignet was $2.00. Which of the following give the nominal value of a variable? Check all that apply. 1-Janet's wage is $14.00 per hour in 2014. 2-The price of a beignet is 0.29 paperback novels in 2014. 3-The price of a beignet is $2.00 in 2014. Which of the following give the real value of a variable? Check all that apply. 1-Janet's wage is 7 beignets per hour in 2014. 2-The price of a paperback novel is $7.00 in 2014. 3-The price of a paperback novel is 3.5 beignets in 2014. Suppose that the Fed sharply increases the money supply between 2014 and 2019. In 2019, Janet's wage has risen to…arrow_forwardThere are so many macroeconomic problems which appear time by time to affect the economic environment of any country. Enlist the most prominent macroeconomic problems which need proper attention of policy makers in Pakistan. Furthermore, if we focus on one of the macroeconomic problems that is, the problem of inflation which generally drops its negative repercussions when it hits the economy. So how the monetary authority in the country tackles this harmful problem through the conduct of monetary policy? Enlist the quantitative and qualitative instruments of monetary policy to answer the above statement.arrow_forward
- State and explain the basic equation of monetarism. What is the major cause of macroeconomic instability, as viewed by monetarists?arrow_forwardAssume an economy’s annual money velocity in circulation is 10. Please answer the following question in the view of monetarists (i.e., the neoclassical view): “If the annual economic growth rate is 5%, what should be the money supply increasing rate to maintain a low inflation rate as 2%?”arrow_forwardMoney neutrality is the idea that a. any policy can have intended and unintended consequences b. in the long-run, markets will clear and return the economy to equilibrium regardless of what happens to the money supply. c. there are two types of variables, nominal and real, and only nominal variables are affected by the money supply. d. nominal and real interest rates are unrelated. During the middle of the 20th century, income inequality in developed economies generally fell. The reason for this was a. average incomes didn't rise but welfare systems redistributed income. b. that returns to assets held by high income earners fell steadily. c. incomes overall rose but taxation systems were slowly made more and more progressive. d. a rise in average income with incomes of the bottom deciles rising faster than the top.arrow_forward
- The economy of Macro Island is described by the quantity equation with constant velocity. All residents of Macro Island understand the quantity theory and use it to form their expectations of inflation. Real income grows at a steady 2 percent per year, and the nominal interest rate is 5 percent. In one year, people had expected the money supply to grow by 4 percent, but in fact it grew by only 3 percent. a. What was the inflation rate? (3% 4% 1% 2%) b. What was the expected inflation rate? (1% 4% 3% 2%) c. What was the ex ante real interest rate? (4% 2% 1% 3%) d. What was the ex post real interest rate? (2% 1% 4% 3%) e. Did the deviation of inflation from what was expected hurt creditors or debtors? ( Creditors Debtors)arrow_forwardThe Classical Dichotomy is the idea that Select one: a.nominal and real interest rates are unrelated. b.there are two types of variables, nominal and real, and only nominal variables are affected by the money supply. c.any policy can have intended and unintended consequences. d.in the long-run, markets will clear and return the economy to equilibrium.arrow_forward3. In the case of monetarism, velocity is said to change in a predictable way. What are the three variables that can be used to determine velocity? For each, identify what must happen to these three variables if each of them leads velocity to fall. 4. Discuss the difference between Neoclassical Growth Theory and New Growth Theory. What does the new growth theory emphasize? Ans both.. otherwise dont answerarrow_forward
- Many have suggested that recent increases in prices are the result of supply chain shortages. Suppose that we all expect this issue to be temporary. In our framework, it can be represented by a decrease in current total factor productivity. Use the monetary intertemporal model to show whether supply chain shortages can cause inflation.arrow_forwardAssume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and pricesarrow_forwardIn contrast to the classical school of economists John Maynard Keynes has a different view of people's behavior in holding money. Explain how the theory of money demand according to John Maynard Keynes!arrow_forward
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