Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 22, Problem 4QAP
a
To determine
To find: The amount of seignorage for each annual growth rate.
b)
To determine
To calculate: The seignorage value and reason for difference with part a.
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Let M be the quantity of money and i the interest rate in decimal form. Suppose that money demand is given by
M =100−20×(1+i)
and that money supply is M = 79. Then the interest rate i is
If the velocity of money is assumed to be constant in the short run, the quantity theory of money contends that a decrease in the money supply will lead to a proportional ____
a. Increase in unemployment rate
b. Increase in nominal interest rate
c. Increase in price level
d. Decrease in nominal output
If the velocity of money is assumed to be constant in the short run, the quantity theory of money contends that a decrease in the money supply will lead to a proportional
a.Increase in unemployment rate
b.Increase in nominal interest rate
c.increase in price level
d.Decrease in nominal output
Chapter 22 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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- Assume that the money demand function is (M / P)d = 2,200 – 200r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: a. 2,000. b. 1,800. c. 1,600. d. 1,400.arrow_forwardThe equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run? Both money supply (M) and money velocity (V) are held constant. Changes in the money supply (ΔM)(ΔM) will balance out with changes in velocity (ΔV)(ΔV) . Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) . Money supply increases (ΔM)(ΔM) will directly increase real GDP.arrow_forwardd) Suppose the money demand function was of the following form: M^d / P = Y η What must the central bank do to achieve an inflation target of 2% over the long-run given a growth rate of income of 5% and an elasticity of money demand with respect to income of 0.8? You can assume that the real rate of interest, r, is fixed at 6%.arrow_forward
- Based on Keynesian economic theory, which of the following will occur if the Central Bank increases the money supply? Select one: The price level will rise while the real rate of interest and the level of investment remains unchanged The real rate of interest will fall and as such investment will increase Aggregate demand will fall as prices rise The nominal rate of interest will fall but the real rate of interest will also fall as the price level falls. As a result, investment remains unchangedarrow_forwardSuppose that money demand is given by the function MD=55+P, and the Bank of Canada maintains the supply of money at MS=$58b. If the Bank of Canada suddenly increases the money supply to MS'-$60b, what has happened to equilibrium value of money? a)It has decreased from 5 to 2 b)MD will shift, and the value of money will remain unchanged c)It has increased from 3 to 5 d) It has decreased from 1/3 to 1/5arrow_forwardSuppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?arrow_forward
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