7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and...

Question

Question

7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and money supply growth is 4%. Assume that outpu

business economics

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

output growth rate in US is = 2%

money demand L = constant

money supply growth rate = 4%

output growth rate in china = 5%

money supply growth = 9%

a. inflation = 9-5 = 4%

growth rate of dollar china exchange rate = (4-2)/2*100

= 1*100%

= 100%

b.

it fixes inflation rate equal to inflation rate in US, that is 2%.

Money supply growth rate in China = 5 + 2 = 7%

c.

Growth rate of output + growth rate of price level = growth rate of Money stock + growth rate of velocity of money

2% + Rate of inflation = (4% + 1%) + 0%

Rate of inflation = 5% - 2%

= 3%

Hence, inflation in the economy is moving at 3 percent annually.

Add a comment

Answer 2

Similar Homework Help Questions

7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and money supply growth is 4%. Assume that...

7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and money supply growth is 4%. Assume that output growth in China is 5%, L is constant and money supply growth is 9%. a. Assume that relative PPP and the quantity theory of money holds. What is the growth rate of the dollar-China exchange rate (%∆E$/China)? b. What should money supply growth be in China if China wants to fix its currency to the dollar?...
value of currency depending upon prices by supply and demand. The deviation happens due to a...

value of currency depending upon prices by supply and demand. The deviation happens due to a few factors like sticky consumer price, inflation, exports. 4. Suppose that the U.S. inflation rate is expected to be 1.5%, and the Mexican inflation rate is expected to be 4.5% in 2020. The exchange rate between the U.S. dollar and the Mexican peso will_ _ (rise, fall, remain unchanged) by __%, if the PPP theory of exchange rate determination holds true. 5. Suppose that...
1. Consider two countries, U.S. and Thailand. In 2019, the U.S. experienced an output growth of...

1. Consider two countries, U.S. and Thailand. In 2019, the U.S. experienced an output growth of 2%, whereas Thailand had an output growth of 4.5%. Suppose the U.S. Federal Reserve allowed the money supply to grow by 4.5% each year, whereas the Bank of Thailand chose to maintain relatively high money supply growth of 6% per year. For the following questions, use the simple monetary model. Treat the U.S. as the home country and Thailand as the foreign country. (a)...

U.S. inflation rate: 1.2%; Mexican inflation rate: 4.5% U.S. money growth rate: 2.2%; Mexican money growth...

U.S. inflation rate: 1.2%; Mexican inflation rate: 4.5% U.S. money growth rate: 2.2%; Mexican money growth rate: 6.4% 1. What will happen to the exchange rate between the U.S. dollar and the Mexican peso in the long run? 2. Calculate how much the Mexican peso will depreciate (or appreciate) against the U.S. dollar in the long run
Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth...

Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth rate is currently 4% and its inflation rate is 2%. Canada's money growth rate is 6% with 3.25% inflation rate. The world real interest rate is 0.75%. For the following questions, use the conditions associated with the general monetary model. Treat Mexico as the home country and define the exchange rate as Mexican pesos per Canadian dollar, E/cS. a. Calculate the growth rate of...
Assume that the quantity theory of money holds and that velocity is constant at 5.0. Output...

Assume that the quantity theory of money holds and that velocity is constant at 5.0. Output is fixed at its full-employment value of 10 000, and the price level is 2.0. Determine the real demand for money. The government fixes the nominal money supply at 5000. With output fixed at its fullemployment level and with the assumption that prices are flexible, what will be the new price level? What will be the price level if the government increases the nominal...

6. Assume that the current dollar-Euro exchange rate (Ese) i equal to 1, the real exchange...

6. Assume that the current dollar-Euro exchange rate (Ese) i equal to 1, the real exchange rate (qua/tur) = 1.26, the price level equals 2 in the U.S. and 2.5 in Europe. Assume that relative PPP holds. a. If inflation is 5% in the u.s. but 28 in Europe, what will be the price levels in the U.S. and Europe a year from now? b. What will be the nominal exchange rate (Ese) a year from now? c. What will...
Suppose that the money demand function takes the form If output grows at rate and the...

Suppose that the money demand function takes the form If output grows at rate and the nominal interest rate is constant, at what rate will the demand for real balances grow? What is the velocity of money in this economy? If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? How will a permanent (once-and-for-all) increase in the level of interest rates affect the level of velocity? How will it affect the subsequent growth...
42. On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money suppl...

42. On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at: A) 5% B) 8%. 12%. D) 20% 43. According to the quantity theory of money, if both the growth rate of the money supply and the velocity of money are fixed, then a higher inflation rate means: A) a higher real growth rate. B) no change...

1. Use the information in the following table to calculate: a. the adult population b. the...

1. Use the information in the following table to calculate: a. the adult population b. the labor force c. the labor-force participation rate d. the unemployment rate Employed Unemployed Not in the labor force 142,263,000 10,112,000 82,932,000 2. Assume that the reserve requirement is 3 percent. All other equal, will the money supply expand more if the Federal Reserve buys $3,000 worth of bonds or if someone deposits in a bank $3,000 that he had been hiding in his cookie...

7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and...

Homework Answers

Add Answer to:
7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and...

Post as a guest

Earn Coins