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EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Chapter 22, Problem 1QCMC
To determine
Nominal and real variables and money neutrality.
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Students have asked these similar questions
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
Money 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.
Ā
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.
Ā 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.
The short-run impact on the nominal interest rate of monetary expansion is differentĀ Ā from its long-run impact. Which of the following explanations is not correct?a. In the short run, nominal interest rate falls due to Fisher effect.b. Over time, rising income pushes up nominal interest rate via increased demand forĀ money.c. Over time, expected inflation rate rises, which in turn pushes up nominal interest rate.d. Over time, rising prices also push up nominal interest rate.e. All of the above are correct
Chapter 22 Solutions
EBK ESSENTIALS OF ECONOMICS
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- The speculative demand for money is...Ā Ā A. positively related to interest rates.Ā Ā B. inversely related to interest rates.Ā Ā C. directly related to income.Ā Ā D. an active balance (earns interest).arrow_forwardIn an economy where the central bank implements negative interest rates as a monetary policy tool, what is the most likely short-term impact on consumer savings behavior and bank profitability? A. An increase in consumer savings as people seek to safeguard their money and a rise in bank profitability due to increased lending. B. A decrease in consumer savings as the incentive to save diminishes and a decrease in bank profitability due to lower interest margins. C. No significant change in consumer savings behavior but an improvement in bank profitability due to lower borrowing costs. D. A shift in consumer investment towards riskier assets and challenges in bank profitability due to compressed interest margins. Please don't use chatgpt it is giving wrong answer and please provide valuable answerarrow_forwardThis question is about the money market and the workings of central bank. a. How a central bank uses the open market operations (OMO) to increase or decrease money supply? b. What kind of relationship exist between an assetās price and rate of return? Explain why. c. Please write a āreal money demand functionā and show and explain what are the main determinants of money demand with the signs (- or +) of each factor. d. Is the money demand function that you wrote in part (c) same with āthe Cambridge money demand functionā? Explain if there is a difference between the two. e. What the quantity theory of money (QTM) says about the relationship between money supply and the price level? Explainarrow_forward
- 1.Monetary equilibrium occurs when theQuestion options: A) supply and demand for all goods in the economy are equal at the current rate of interest. B) existing supply of money is willingly held by households and firms in the economy at the current rate of interest. C) growth in the money supply is zero. D) the money supply is growing at a constant rate. E) nominal rate of interest equals the real rate of interest. 2.The economy starts in long-run equilibrium. After an initial shock, and the subsequent adjustment process, the economy ends up at a point with a higher price level and the initial level of real GDP. Which of the following initial shocks would explain this?Question options: a) An increase in desired savings. b) An increase in government transfer payments. c) An appreciation of the Canadian dollar. d) An improvement in production technology. e) An increase in the cost of factor inputs. 3.The economy starts in long-run equilibrium. After an initial shock, and the subsequentā¦arrow_forwardUnder the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then Ā A. the nominal interest rate rises, but the real interest rate does not. B. the real interest rate rises, but the nominal interest rate does not. C. neither the nominal nor the real interest rate rise. D. both the nominal and the real interest rate rise.arrow_forwardIf nominal GDP in an economy is $1500 and the money supply is $500, what is the velocity of money? Ā a. 333 b. 5 c. 3 d. 7500arrow_forward
- Consider the simple quantity theory of money. Which variables are exogenous?(Choose one or more.)A The stock of money.B The demand to hold money.C The (exchange) value of money.D The purchasing power of money.E The average level of prices.arrow_forward3. The 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. Ginny spends all of her money on magazines and donuts. In 2015, she earned $14.00 per hour, the price of a magazine was $7.00, and the price of a donut was $2.00. Which of the following give the nominal value of a variable? Check all that apply. The price of a donut is 0.29 magazines in 2015. O Ginny's wage is 2 magazines per hour in 2015. O The price of a donut is $2.00 in 2015. Which of the following give the real value of a variable? Check all that apply. The price of a magazine is $7.00 in 2015. O Ginny's wage is $14.00 per hour in 2015. O The price of a magazine is 3.5 donuts in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Ginny's wage has risen to $28.00 per hour. The price of a magazine is $14.00 and the price of a donut is $4.00. Inā¦arrow_forwardAccording to the classical theory of money, inflation does not make workers poorer because wages increase: Select one: a.Ā faster than the overall price level. b.Ā more slowly than the overall price level. c.Ā in proportion to the increase in the overall price level. d.Ā in real terms during periods of inflation.arrow_forward
- Suppose a country has a money demand function (M/P)ĀŖ = 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.arrow_forwardA. Discuss, with the help of diagrams, Friedmanās argument concerning the short and long-run effects of an increase in the money supply. B. Now discuss how his argument can be extended to study short and long-run effects of changes in the growth rate of a growing money supply. Both parts please.arrow_forwardAll else equal, suppose the interest rate rise from 3% to 3.5%. What will happen in the supply of money? a. Shifts to the right. b. Shifts to the left. c. An upward movement along the supply curve. d. An downward movement along the supply curve. e. The supply will remain unchanged.arrow_forward
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