MACROECONOMICS W/ACCESS >IC<
20th Edition
ISBN: 9781308103785
Author: McConnell
Publisher: MCG/CREATE
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Chapter 19, Problem 6DQ
To determine
The basic equation of monetarism.
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4-2 Module Four Homework
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To use money growth as a short-term monetary policy instrument, a central bank must belleve that
Multiple Choice
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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 unpredictable
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
Figure 30-3
On the following graph, MS represents the money supply and MD represents money demand.
O 2.0.
O 14.3.
O 2.9.
VALUE OF MONEY
O 0.35.
0.35
MS,
8000
MS₂
Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also
suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium,
then the velocity of money is approximately
13000
QUANTITY OF MONEY
MD
Chapter 19 Solutions
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- INTEREST RATE 12 10 co + 2 O 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.arrow_forwardIf the money supply is $60 billion, the velocity of money is 7, and real GDP is $240 billion, then the price level equals: 1.75 O 0.57 1.50. O 4 O 1.25arrow_forwardo 19. Which of these statements is true according to the Keynesian (post-Keynesian) view? a. Increases in monetary base cause an increase of money supply 20 b. Increase of money supply cause inflation c. Demands of firms for credit creates money supply d. Central banks can directly control money supply can couNOMIC OF prough anti- lated according to Keynes?arrow_forward
- d. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggrega supply.arrow_forward1. Suppose that the money market can be depicted in the graph below Interest rate (M/P)² (M³/P)⁰ (M³/P)¹ G K A O B C O E L3 L1 12 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume that the price level does not change. The original equilibrium is at point O. Suppose that the Federal Reserve board lowered the reserve requirement for commercial banks. Briefly describe how you reached that conclusion. ( Identify the new equilibrium point and explain what happens to interest rates.arrow_forwardWhat do you expect will happen to the price level and real GDP in the short run when the bank of Canada buys domestic government bonds given a positively sloped SRAS curve? Select one: O a. Both the price level and real GDP will cross out increase. O b. Both the price level and real GDP will decrease. cross out O c. The price level will increase while real GDP cross out will decrease. O d. The price level will decrease while real GDP cross out will increase. O e. There is no change either to the price level or cross out the real GDParrow_forward
- 2. Suppose that the money market can be depicted in the graph below. Interest rate (M/P)² (M³/P)⁰ (M³/P)1 H A K O B C O E L3 L1 L2 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume tha the price level does not change. The original equilibrium is at point O. Suppose that the government lowered income taxes so that consumers had more disposable income. Briefly describe how you reached that conclusion. Identify the new equilibrium point and what happens to interest ratesarrow_forwardesc > Moving to another question will save this response. Velocity of money depends on all of the following, except: Customs O Stability of money as store of value Inflation Rate Wage Rate Question 18 bike 2.jpg 101°F Sunny f1 ? 1 a 2 W # bike.jpg 3 10 $ 4 #bike 2 f5 % R LO 5 Earrow_forwardUsing 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%arrow_forward
- The money stock grows by 15%, the real GDP grows by 2%, the velocity of circulation does not change. What will be the rate of inflation? 17.3% O 17% O 1.1739 O 12.74%arrow_forwardDiscuss the following statements: a. The Keynesian multiplier is higher the higher is the degree of openness of the economy'. b. 'There is no easy policy answer when it comes to dealing with a negative supply shock'. Consider the following economy. The production function is F(K,L) = K0.3 Lº.7. The saving rate and the depreciation rate are respectively: s = 0.10 and 8 = 0.07. Population growth is 1%, i.e. n = 0.01. c. Derive the capital accumulation equation for this economy. d. Find the steady state value of the capital stock per capita. e. Suppose that the initial capital stock per capita is: k = 1.5. Discuss the process of convergence of the economy to the steady state using the appropriate diagram. f. Calculate the optimal saving rate of the economy and discuss whether the economy at the steady state over or under-accumulates capital.arrow_forwardThe 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%)arrow_forward
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