Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305134935
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 3PA
To determine
Zero inflation and rate of money growth.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we
assume that velocity is contant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal
Suppose a country has a money demand function
(M/P)ª = kY, where k is a constant parameter.
The
money supply grows by 12 percent per year,
and real income grows by 4 percent per year.
a. What is the average inflation rate?
b. How would inflation be different if real
income growth were higher? Explain.
c. How do you interpret the parameter k? What
is its relationship to the velocity of money?
d. Suppose, instead of a constant money demand
function, the velocity of money in this
economy was growing steadily because of
financial innovation. How would that affect
the inflation rate? Explain.
“If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.
Chapter 17 Solutions
Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
Knowledge Booster
Similar questions
- How would a doubling of velocity affect Real and Nominal GDP, assuming the money supply doesn’t changearrow_forwardwhy must the velocity of money be stable or predictable for the quantity theory of money to yield useful predictionsarrow_forwarda) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?arrow_forward
- According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? a) innovations relating to banking and finance b) unpredictable rises and falls in nominal GDP c) quantity of credit rises above where it otherwise be 4. d) monetary policy will become inevitably imprecisearrow_forwardIf M 1,000, P = 2, and Y = 4,000, what is velocity? = 1/2 1/4 8arrow_forwardIf GDP now falls back to 1,500 and the money supply falls to 350, what is velocity?arrow_forward
- If the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?arrow_forwardSome commentators have argued that the Fed is running a risk with inflation in the future as a result of the recent large-scale asset purchase programs (known as QE). Although inflationary risks in the near term look still remote, their concerns with its potential negative effects on the economy may not be totally groundless. Which of the following may not justify their concerns? a. Ultra loose monetary policy as it has been may eventually lead to higher inflation.b. Lower interest rate may cause a large depreciation of the US dollar, and hence raise import prices and inflation.c. Lower interest rate may lead to asset-price bubble, raising the risk of a major eventual correction and its potential adverse effects on the economy.d. Lower interest rate may raise productivity growth that would eventually spark inflationarrow_forwardSupposed that followed by an unexpected discovery of new oil reserves there is a reduction in oil prices. What policy suggestion makes it possible to keep the inflation rate at its rate prior to the discovery without changing the target for federal funds rate? A)An increase in income taxes. B)An across the board decrease in corporate profit taxes. C)An open market purchase if reserves are scarce. D)An increase in ONRRP rate.arrow_forward
- Some economists argue that suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.arrow_forwardExpansionary monetary policy may prevent deep recessions with uncertain long-term consequences. However, as a result, firms, households, and the government accumulate significant amounts of additional debt, the payments for which may result in lower spending and investment and likely slower recovery. With that in mind, should central banks implement expansionary monetary policy or not?arrow_forwardIn what situation is the use of Monetary Policy not effective? In all situations monetary policy is effective. When the economy experienced excessive economic growth When the economy experiences a very severe recession When the economy experiences stagflationarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning