Question

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), ii), and iii). (2.5 points per question, 7.5 points total) The inflation rate is r -2% ī - IT 2% 4% 17:30 - 2% 5% The money supply growth rate is -2% 2% real GDP.. growthrale inflation, nommal GDP grouth rate 4. - x D 4% π = XMAY 5% - 2 27. = x-2% DMS inflation - huminal GDP real GDP growth rare growth rate - X e೦೮ ಅ - e೦೮೮ … ಈ ಅ೦೮ - ಆಿರಲಿ; The real GDP growth rate is -2% 2% 4% care 5% 27. 4%. ii) (2.5 points per question, 5 points total) Suppose the Federal Reserve decreases the money growth rate by 2 percentage points, then the change in nominal GDP is 0% -2% 2% 4% change in the real interest rate is 0% -2% 2% 4%

Answer 1

(12. velocity growth rate = 0%. nominal GDP Grouth rate : 4.7 According to aTM. Mev=PxY. where; M - money supply - velecity of money - Price level y - Real GDP py nominal GDP. In growth terms Growth of Nt Growth of v= Gront of nomina GDP 1 Growth of n to% = 4 ) - Greuth of M = 4 % | Initial growth rate of money was 4 pe of miney leerd 4% %. Now Federal Reserve decreases the the money growth rate by 2 percentage points New Growth rate of money = News Growth rate of money 40% - 2 of. money = 2 ).

Growth of Mt Gouwth of V = Growth of nominal GDP. - 2% + t = Growth of nominal GAP New Growth rade of nominal ao? = 2% Intial to nominal app growth = 4.10 changin nominal GDP = 2 ) -4% change in nomine) APP = -2% Andror: uption (6) (13. According to clussical dichotomy, change in miney supply affecss inly nominal variable and does not affect the real variable. Se the change in the real interest will be zero (0.1) Answer: option (a).