ZuoTi.Pro
Question

Homework 4. Q4 (a)Suppose that the velocity of circulation of money is constant, but GDP is...

Homework 4. Q4
(a)Suppose that the velocity of circulation of money is constant, but GDP is not and assume that GDP grows by 5% per year, the quantity of money grows by 14% a year and the nominal interest rate is 11%, can you calculate the real interest rate?(Hint: you should use the equation ∆M +∆V = ∆P +∆Y and the Fisher equation.)
(b)Do you believe that people can have expectations that are consistently wrong in the long-run? In other words, do you believe that expectations are right on average? Why or why not?
(c)As mentioned above, V is fairly constant in the long run in the States and other “stable” countries. But there are times/places in which V is not constant, can you explain in which case the velocity of circulation of money will not be constant? Explain carefully your answer!

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Ans

1 real interest rate=nominal rate-real Gdp growth rate=14-5=9%

2 Yes they can be wrong. This is because economic phenomenon is not always same. It changes frequently and it is quite difficult for ordinary people to understand full implications

3 Due to technological improvements in monetary system Velocity can change. Similarly war etc can change it

0 0
Add a comment
Know the answer?
Add Answer to:
Homework 4. Q4 (a)Suppose that the velocity of circulation of money is constant, but GDP is...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Suppose that the velocity of circulation of money is constant and real GDP is growing at...

    Suppose that the velocity of circulation of money is constant and real GDP is growing at 2 percent a year. a) To achieve an inflation target of 2 percent a year, at what rate would the central bank (Bank of Canada) grow the quantity of money? b) At what growth rate of the quantity of money would deflation be created?

  • The velocity of circulation is constant, real GDP is growing at 5 percent a year, the...

    The velocity of circulation is constant, real GDP is growing at 5 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 3 percent a Calculate the inflation rate, the growth rate of money, and the growth rate of nominal GDP The inflation rate is percent a year The growth rate of money is percent a year. The growth rate of nominal GDP percent a year Google Sei

  • 5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of mon...

    5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of money in circulation is constant, and inflation is expected to be about 2 percent over the current year. What is the short run economic growth rate? A) 16 percent B) 10 percent C) 8 percent D) 6 percent E) 4 percent 8. The fisher effect matters in terms of inflation given that A) borrowers agree to loan terms...

  • Question 5 of 5 3 Points Assume the velocity of money is constant. Real GDP grows...

    Question 5 of 5 3 Points Assume the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 5 percent per year, and the nominal interest rate is 5 percent. What is the real interest rate? Show all formulas used and steps taken.

  • • if the velocity of money is 2, the money supply in this economy is ($4.5 trillion/ $18 trillion/ $27 trillion/ $3...

    • if the velocity of money is 2, the money supply in this economy is ($4.5 trillion/ $18 trillion/ $27 trillion/ $36 trillion/ $45trillion /$54 trillion) •because ( the federal reserve controls M/ velocity is assumed to be constant/ the AD curve is downward sloping ), the percentage increase in the price level Is ( less then/ the same as/ greater then ) the percentage increase im the money supply. the illustrates the ( importance of the federal reserve /...

  • Question 6: Inflation and the quantity theory Suppose velocity is constant, the growth rate of real...

    Question 6: Inflation and the quantity theory Suppose velocity is constant, the growth rate of real GDP is 3% per year, and the growth rate of money is 5% per year. Calculate the long-run rate of inflation according to the quantity theory in each of the following cases: (a) What is the rate of inflation in this baseline case? (b) Suppose the growth rate of money rises to 10% per year. (C) Suppose the growth rate of money rises to...

  • 4) Suppose in the economy in the next couple years, bitcoin and other alternatives to money...

    4) Suppose in the economy in the next couple years, bitcoin and other alternatives to money become even more popular. As a result, money demand (demand for $) goes down. a) Draw IS/LM and AD/AS diagrams, label the initial long-run equilibrium. Now show the effect of the decrease in money demand on both diagrams and label the short-run equilibrium. b) If policymakers do nothing, what will happen in the long-run after this decrease in money demand? c) Suppose instead that...

  • Which statement best defines the velocity of money? (1 mark) a. It is the rate at...

    Which statement best defines the velocity of money? (1 mark) a. It is the rate at which the central bank puts money into the economy. b. It is the long-term growth rate of the money supply. c. It is the money supply divided by nominal GDP. d. It is the average number of times per year a dollar is spent. In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in...

  • i dont know how to do #12 or #13 Section 3: Quantity Theory of Money (3...

    i dont know how to do #12 or #13 Section 3: Quantity Theory of Money (3 parts, 17.5 points total) Suppose that velocity is constant, nominal GDP is growing by 4% per year, the nominal interest rate is sy and the real interest rate is 1%. Using the quantity theory of money, the fisher equation, and the classical dichotomy, answer the following questions about the long-run. Mark your answers on the scantron form. No need to show work for i),...

  • 2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent...

    2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent 16 14 Nominal Real 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Year Figure 2: Real and nominal interest rates in the US, 1960-2015 1. State the Fisher equation. What do the three variables in Fisher's equation represent? 2. Consider Figure 2. Why do negative real interest rates occur? Are they a problem for the economy? 3. In Figure 2,...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT