Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 19, Problem 10DQ
To determine
Comparing the market with different price levels.
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The income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is nj = -0.02. Suppose that the central bank increases the
money supply by 5%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate?
O -0.3 (or -30%)
O 0.3 (or 30%)
O-0.1 (or -10%)
O 0.1 (or 10%)
Using the Taylor Rule, if the inflation rate is 2.5%, Equilibrium Real Federal Fund Rate is 2% and output gap is zero, the real neutral federal fund
rate is.. .
O 4.75%
O 2.25 %
O 2.5%
O 4.5%
In which of the following situations would you prefer to be the lender?
1) Expected inflation rate is 7 percent and the interest rate is 9 percent
2) The interest rate is 25 percent and the expected inflation rate is 50 percent.
3) The interest rate is 13 percent and the expected inflation rate is 15 percent.
O 4) The interest rate is 4 percent and the expected inflation rate is 3 percent.
O 5) Expected inflation rate is 1 percent and the interest rate is 4 percent
O6) None of the answers are correct
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- 4-2 Module Four Homework LO 5 166 PIE To use money growth as a short-term monetary policy instrument, a central bank must belleve that Multiple Choice Saved there is a stable link between the monetary base and the rate of inflation only money matters there is an unpredictable relationship between money aggregates and inflation the deposit expansion multiplier is volatile and unpredictablearrow_forwardSuppose the U.S. economy is in equilibrium at a potential output of $10 trillion so that unemployment is at the natural rate. At the beginning of the year, the Federal Reserve announces that its monetary policy will aim to maintain output at potential output and sustain the current price level throughout the year. Firms and workers negotiate annual wage and resource price agreements based on the belief that the Fed is committed to price stability. The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve (SRAS) at an expected price level of 120. Now suppose that several months later, the Fed abandons its stated goal of price stability and shifts toward an expansionary monetary policy. On the following graph, show the short-run effect of this policy by shifting the appropriate curve or curves. Note: Select and drag one, both, or all of the curves to the desired position. Curves will snap into position,…arrow_forwardAccording to the Taylor rule, what should the federal funds rate target be if the current inflation rate is 9%, the target inflation rate is 2%, the equilibrium real federal funds rate is 1.5%, and the output gap is -4.5%? O (-) 9.75 percent O 11.75 percent 14 percent O 13.00 percentarrow_forward
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