Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 39, Problem 6DQ
To determine
The basic equation of monetarism.
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Chapter 39 Solutions
Economics (Irwin Economics)
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- 3. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity of money?b. Suppose that velocity is constant and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant.c. What money supply should the Fed set next year if it wants to keep the price level stable?arrow_forward14. Is there a “natural” rate of interest? What does it mean and what determines it? Is there a curve such as the Phillips curve for the real rate of interest? Discuss. 15. Why does the real interest rate fluctuate over the business cycle? Can monetary factors change it? Discuss. 16. Are the loanable funds and liquidity preference theories of the rate of interest consistent with (i) interest rate targeting, (ii) the Taylor rule? If not, how can they be made consistent?arrow_forward7. The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. Ifa bank had capital of 10 percent when the Fed began raising rates and has no loans at risk ofdefault, under what circumstances will its capital position be compromised? Please be specific.8. How do rising interest rates affect the size of real estate loans that lenders will advance?Again, be specific.9. Mortgage rates have risen by about 4 percent over the past year. Does that mean that theacceptable minimum appreciation rate for looking at owner housing relative to renting hasrisen by 4 percent? Why or why not? (Hint: think about our analysis of the buy-rent decision).10. You are evaluating a CMBS. Beyond the standard metrics (i.e., LTV, DCI, etc.), name twothings to consider in evaluating the security.arrow_forward
- 5. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. A.) What is the price level? What is the velocity of money? B.) Suppose that velocity is constant, and the economy’s output of goods and services rises by 5% each year. C.) What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? D.) What money supply should the Fed set next year if it wants to keep the price level stable? E.) What money supply should the Fed set next year if it wants an inflation rate of 10%.arrow_forwardAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forwardSuppose that an economy has a constant nominal money supply, a constant level of real output Y = 1500, and a constant real interest rate r = 0.05, and it’s expected rate of inflation is 2%, i.e, πe = .02. Suppose that the income elasticity of money demand is ηY = 0.5 and the interest elasticity of demand ηi = –0.2. (a) Suppose that Y decreases to 1425, r remains constant at 0.05 and there is no change in the expected rate of inflation. What is the percentage change in the equilibrium price level? (b) Suppose that r increases to 0.06 and Y remains at 1500. Assuming that expected inflation remains at πe = .02, what is the percentage change in the equilibrium price level? (c) Suppose that r increases to 0.06. Assuming that πe = .02, what would real output have to be for the equilibrium price level to remain at its initial value?arrow_forward
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