4. Here is the expression for money market equilibrium that we discussed in class: M = P. L(Y,r + n") In growth rates, this expression is written: %AP = %AM – %AL(Y,r +n°) a) Suppose the elasticity of money demand to a change in output is 1. If the central bank causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the inflation rate be? b) Repeat question a, in this case with the money supply growing at a 9% rate. c) In general, what is the relationship between money growth and inflation?
4. Here is the expression for money market equilibrium that we discussed in class: M = P. L(Y,r + n") In growth rates, this expression is written: %AP = %AM – %AL(Y,r +n°) a) Suppose the elasticity of money demand to a change in output is 1. If the central bank causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the inflation rate be? b) Repeat question a, in this case with the money supply growing at a 9% rate. c) In general, what is the relationship between money growth and inflation?
Chapter12: Money And Banking
Section: Chapter Questions
Problem 13E
Related questions
Question
![4. Here is the expression for money market equilibrium that we discussed in class:
M = P· L(Y,r +n°)
In growth rates, this expression is written:
%AP
%AM – %AL(Y,r + n°)
a) Suppose the elasticity of money demand to a change in output is 1. If the central bank
causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the
inflation rate be?
b) Repeat question a, in this case with the money supply growing at a 9% rate.
c) In general, what is the relationship between money growth and inflation?
d) What is monetary neutrality and how does it affect your answers to part c?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5c985735-1712-4ec8-b727-d5bdfdaddb93%2F225546dc-e89d-4c6b-abd0-2be9298543a1%2Fqc93l8u_processed.jpeg&w=3840&q=75)
Transcribed Image Text:4. Here is the expression for money market equilibrium that we discussed in class:
M = P· L(Y,r +n°)
In growth rates, this expression is written:
%AP
%AM – %AL(Y,r + n°)
a) Suppose the elasticity of money demand to a change in output is 1. If the central bank
causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the
inflation rate be?
b) Repeat question a, in this case with the money supply growing at a 9% rate.
c) In general, what is the relationship between money growth and inflation?
d) What is monetary neutrality and how does it affect your answers to part c?
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