MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
8th Edition
ISBN: 9780134518312
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 28, Problem 7MCQ
To determine

The inflation rate in the long run with a constant velocity of circulation.

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. Let real GDP growth-2.4% per year, money growth-5% per year, nominal interest rate 4.8% and velocity of money-constant. (a) Find the inflation rate, the real interest rate, and the cost of holding money.
a Imagine an economy has the following situation: Velocity of money (V) is constant, Nominal Money Supply (M) growth is 8%, Output (Y) growth is 4% and real interest rate (r) is 4%. Calculate the following: i. Nominal interest rate (i) ii. If State Bank of Pakistan (SBP) increases the money growth rate by 2 percent point per year, find Δi? iii. If the growth rate of Y decreases to 2% per annum, what will happen to the inflation rate (π)?
Most central banks, like the Bank of England, set targets for their economy's inflation rate. The Bank of England has an inflation target of 3.5% per year. According to the Quantity Theory of Money, by how much must the Bank of England grow the money stock in order to hit its inflation target?        The Bank of England must decrease the money stock by 3.5% per year.       The Bank of England must increase the money stock by 3.5% per year.       The Bank of England must decrease the money stock by 3.5% per month.       The Bank of England must increase the money stock by 3.5% per month.
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