EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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Chapter 8, Problem 5E
(a)
To determine
Calculate the long-run inflation rate.
(b)
To determine
Calculate the long-run inflation rate when the growth rate of money is increased by 10 percent.
(c)
To determine
Calculate the long-run inflation rate when the money growth rate increases to 100 percent.
(d)
To determine
Calculate the long-run inflation rate when GDP growth rate increases to 5 percent.
(e)
To determine
Calculate the long-run inflation rate when GDP growth rate decreases to 2 percent.
(f)
To determine
Calculate the long-run inflation rate when the velocity of money circulation increases by 1 percent.
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Inflation is always present, to some degree, in economic systems. (a) Define inflation; (b) explain the difficulties of measuring the current rate of inflation; and (c) explain the differences between “normal” and “destructive” levels of inflation—mentioning hyperinflation.
In each of the following scenarios, explain and categorize the cost of inflation. A) Because of inflation has risen, the L.L Bean Company decides to issue a new catalog quarterly rather than annually. B)Grandma buys annuity for $100,000 from an insurance company, which promises to pay her $10,000 a year for the rest of her life. After buying it, she is surprised that high inflation triples the price level over the next few years. C)Maria lives in an economy with hyperinflation. Each day after being paid, she runs to the store as quickly as possible so she can spend her money before it loses its value. D) Warren lives in an economy with an inflation rate of 10%. Over the past few years, he earned a return of $50,000 oh his million dollar portfolio of stocks and bonds. Because his tax rate is 20%, he paid $10,000 to the government. E) Your father tells you that when he was your age, he worked for only $3 an hour. He suggest that you are lucky to have a job that pays $7 an hour. Is it…
Q1:
e) What are the various effects of inflation?f) State and explain the monetary measures to control inflation.
Chapter 8 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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- b. Suppose a country has a money demand function (M/P)d= kỲ, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. What is the average inflation rate?arrow_forwardWhich of the following will result in an increased inflation rate? Select One: a) Low interest rates, low government spending b) High interest rate, low taxes c) Low interest rate, high taxes d) High interest rate, high government spending e) Low interest rates, low taxesarrow_forwardIn the short-run you know that firms and households expect inflation of 3.6% next year. There are no supply shocks and cyclical unemployment is 1.09%. Lambda is 0.5. With this information, what is the inflation rate today? Write your answer as a percentage, round at one (1) decimal, and do not write the percentage sign. Use a minus sign if needed.arrow_forward
- Which of the below statements IS NOT CORRECT about the term "inflation" or its effect, as Charles Wheelan explains the term in this chapter? Group of answer choices Massive inflation (or, hyperinflation) distorts the economy, as workers rush to spend their cash before it becomes worthless. The most instructive way to think about inflation is not that prices are going up, but rather that the purchasing power of the dollar is going down. Inflation redistributes wealth arbitrarily, as unexpected bouts of inflation are good for debtors and bad for lenders. Inflation favors retired people with fixed incomes and increases the purchasing power of their income.arrow_forwardSuppose that the price level in Canada was 100 in 2007, 105 in 2008, 110 in 2009, and 115 in 2010. Over this time period, a) the inflation rate was positive b) the inflation rate increased c) the inflation rate decreased d) hyper inflation occurred e) both a and c are correctarrow_forward
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