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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Question
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.
Chapter 28 Solutions
MyLab Economics with Pearson eText -- Access Card -- for Foundations of Economics
Ch. 28 - Prob. 1SPPACh. 28 - Prob. 2SPPACh. 28 - Prob. 3SPPACh. 28 - Prob. 4SPPACh. 28 - Prob. 5SPPACh. 28 - Prob. 6SPPACh. 28 - Prob. 7SPPACh. 28 - Prob. 8SPPACh. 28 - Prob. 9SPPACh. 28 - Prob. 10SPPA
Ch. 28 - Prob. 11SPPACh. 28 - Prob. 1IAPACh. 28 - Prob. 2IAPACh. 28 - Prob. 3IAPACh. 28 - Prob. 4IAPACh. 28 - Prob. 5IAPACh. 28 - Prob. 6IAPACh. 28 - Prob. 7IAPACh. 28 - Prob. 8IAPACh. 28 - Prob. 9IAPACh. 28 - Prob. 10IAPACh. 28 - Prob. 11IAPACh. 28 - Prob. 12IAPACh. 28 - Prob. 1MCQCh. 28 - Prob. 2MCQCh. 28 - Prob. 3MCQCh. 28 - Prob. 4MCQCh. 28 - Prob. 5MCQCh. 28 - Prob. 6MCQCh. 28 - Prob. 7MCQCh. 28 - Prob. 8MCQ
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- All other things being equal, by how much will nominal GDP expand if the central bank Increases the money supply by 100 billion, and the velocity of money is 3? (Use this information as necessary to answer the following 4 questions.)arrow_forwardJapan's money supply is growing rapidly at a 5.54% while real GDP is increasing at 8.29%. Japan's real interest rate is also growing at 4.46%. *we are assuming Quantity Theory of Money, Classical Dihotomy, and Fisher Effect effect are true. a. calculate the inflation rate b. calculate nominal interest rate c. calculate GDP growth ratearrow_forwardThe interest rate increases from 10% to 12% and GDP falls from 110 to 100 and money supply is growing by 2% - find the impact on inflation. What growth rate of money is required to have zero inflation. Income elasticity is 0.5 and interest rate elasticity is -0.1 Use the equation delta p/p = delta Ms / Ms – (delta md/md)arrow_forward
- QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?arrow_forwardAssume GDP is currently $10,800 billion per year and the quantity of money is $540 billion. a. What is the velocity of money?arrow_forwardA country’s money supply growth is 3%. The growth rate of real GDP equals 5%. Using a quantitative theory of money, answer the following: 1) what os the growth rate of nominal GDP 2) What is inflation ratearrow_forward
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