Homework Answers
20. The purchasing power of wage depends upon the rate of inflation. An increase in wage along with the increase in price level does not raise the purchasing power of wage. Again a wage rise followed by a fall in price level or a constant price level increase the purchasing power of the wage.
Answer: a. the rate of inflation in the coming year is below 3%.
21. After the World War II, output and price level were unstable.
Answer: c. Yes, output and the price level were more stable prior to the World War II than after World War II.
22. Both high inflation and high deflation are harmful to the economy. Thus the policy makers have to make policies to control both the situations.
Answer: c. Both.
23. In the valuation of GDP only final value of goods and services is taken. If we take the value of intermediate goods, the GDP will be exaggerated due to double counting.
Answer: b. double counting.
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20. Suppose a worker receives a 3% pay raise for the coming year, under which of...
6) Financial crises in advanced economies might start from a A) debt deflation. B) currency crisis....
6) Financial crises in advanced economies might start from a A) debt deflation. B) currency crisis. C) mismanagement of financial innovations. D) currency mismatch. 7) The most common definition that monetary policymakers use for price stability is A) low and stable deflation. B) an inflation rate of zero percent. C) high and stable inflation. D) low and stable inflation. 8) Monetary policy is considered time-inconsistent because A) of the lag times associated with the implementation of monetary policy and its...
(c) If you cared primarily about inflation and not much about output, which option would you...
(c) If you cared primarily about inflation and not much about
output, which option would you recommend? Why?
(d) Explain the general trade-off that policymakers are faced with
according to the Phillips curve.
5. An oil shock: Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of short-run output levels...
9) Which of the following imply a deflation? I. persistently increasing CPI III. positive CPI V....
9) Which of the following imply a deflation? I. persistently increasing CPI III. positive CPI V. persistently lower inflation rate IL. persistently decreasing CPI IV, negative CPI VI. negative inflation rate C) II, IV and VI 10) The quantity theory of money argues that, in the long run (when RGDP stays constant), the percentage change in money will create an equal percentage change in A) velocity B) real GDP C) inflation rate. D) the price level. 11) If velocity is...
Read the article The Dangers of Deflation from The Economist; the article is available as a...
Read the article The Dangers of Deflation from The Economist; the article is available as a pdf file under "Articles" on the Blackboard menu. Respond to the following questions: a) What are the dangers of deflation? b) What can be said about "monetary neutrality" in the context of a low inflation environment? c) Drawing on what you have learned in recent chapters (29, 30), what recommendations would you make to policy makers in a situation of very low inflation or...
The accompanying graph shows the relationship between the average annual increase in the price level and...
The accompanying graph shows the relationship between the average annual increase in the price level and the average annual increase in money supply across eight countries. 45-degree I Harpoglia a. What concept, related to monetary policy, does this graph help demonstrate? Valko Cherbani O Ragnar Nurkse's balanced growth theory O the liquidity preference model O buffer theory O convergence hypothesis Caz Resa Tyndaria Harnnastas Veckram eGonmorl'n monetary neutrality Increase in money supply (%) Use the concept or model identified in...
If nominal GDP is $48,000 million, and the money supply is $6,000 million, then the velocity...
If nominal GDP is $48,000 million, and the money supply is $6,000 million, then the velocity of money is equal to Question 33 options: 1) 8 2) 3.1 3) 49.6 4) 0.025 Question 34 (2.5 points) This society’s Unemployment Rate is__________ Type A Type B Type C Type D Do you currently have a job? No Yes No No Are you currently seeking a job? No Yes Yes No Number of people of this type 700,000 220,000 80,000 600,000 Question...
8) Consider an economy in long-run equilibrium with an inflation rate () of 0.08 per year and a natural unemployment rate of 0.05. Suppose Okun's law holds and a one percentage point unemplo...
8) Consider an economy in long-run equilibrium with an inflation rate () of 0.08 per year and a natural unemployment rate of 0.05. Suppose Okun's law holds and a one percentage point unemployment rate reduces real output by 2% of full-employment output. The expectation-augmented Phillips curve is givep by increase in the т . ne . 2.5 (u-005). Consider a two distr maErTTelintyear,π .006 and me . 008. In the second year, π.004 and㎡. (a) In the first year, what...
Over the coming year Ragwort’s stock price will halve to $35 from its current level of...
Over the coming year Ragwort’s stock price will halve to $35 from its current level of $70 or it will rise to $140. The one-year interest rate is 10%. a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $70? (Round your answer to 4 decimal places.) Delta b. Given the delta computed in part (a), how much would be borrowed if the replicating-portfolio method was used to value the call...
1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World...
1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World War II, empirical economists noticed that, in many advanced economies, as unemployment fell, inflation tended to rise, and vice versa. The inverse relationship between unemployment and Inflation, was depicted as the Phillips curve, after William Phillips of the London School of Economics. In the 1950s and 1960s, the Phillips curve convinced many policy makers that they could use the relationship to pick acceptable levels...
Suppose that you are running a business, and you need some extra space for one year....
Suppose that you are running a business, and you need some extra space for one year. Your bank offers you a loan of $200,000 at 0% Interest. You consider borrowing this amount to buy the building, use it for one year, and then sell the building to pay back the loan. Unfortunately, the economy in which you are operating is experiencing deflation at the rate of 10% per year. After one year, you should be able to sell the building...
6) Financial crises in advanced economies might start from a A) debt deflation. B) currency crisis. C) mismanagement of financial innovations. D) currency mismatch. 7) The most common definition that monetary policymakers use for price stability is A) low and stable deflation. B) an inflation rate of zero percent. C) high and stable inflation. D) low and stable inflation. 8) Monetary policy is considered time-inconsistent because A) of the lag times associated with the implementation of monetary policy and its...
(c) If you cared primarily about inflation and not much about
output, which option would you recommend? Why?
(d) Explain the general trade-off that policymakers are faced with
according to the Phillips curve.
5. An oil shock: Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of short-run output levels...
9) Which of the following imply a deflation? I. persistently increasing CPI III. positive CPI V. persistently lower inflation rate IL. persistently decreasing CPI IV, negative CPI VI. negative inflation rate C) II, IV and VI 10) The quantity theory of money argues that, in the long run (when RGDP stays constant), the percentage change in money will create an equal percentage change in A) velocity B) real GDP C) inflation rate. D) the price level. 11) If velocity is...
The accompanying graph shows the relationship between the average annual increase in the price level and the average annual increase in money supply across eight countries. 45-degree I Harpoglia a. What concept, related to monetary policy, does this graph help demonstrate? Valko Cherbani O Ragnar Nurkse's balanced growth theory O the liquidity preference model O buffer theory O convergence hypothesis Caz Resa Tyndaria Harnnastas Veckram eGonmorl'n monetary neutrality Increase in money supply (%) Use the concept or model identified in...
8) Consider an economy in long-run equilibrium with an inflation rate () of 0.08 per year and a natural unemployment rate of 0.05. Suppose Okun's law holds and a one percentage point unemployment rate reduces real output by 2% of full-employment output. The expectation-augmented Phillips curve is givep by increase in the т . ne . 2.5 (u-005). Consider a two distr maErTTelintyear,π .006 and me . 008. In the second year, π.004 and㎡. (a) In the first year, what...
1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World War II, empirical economists noticed that, in many advanced economies, as unemployment fell, inflation tended to rise, and vice versa. The inverse relationship between unemployment and Inflation, was depicted as the Phillips curve, after William Phillips of the London School of Economics. In the 1950s and 1960s, the Phillips curve convinced many policy makers that they could use the relationship to pick acceptable levels...
Suppose that you are running a business, and you need some extra space for one year. Your bank offers you a loan of $200,000 at 0% Interest. You consider borrowing this amount to buy the building, use it for one year, and then sell the building to pay back the loan. Unfortunately, the economy in which you are operating is experiencing deflation at the rate of 10% per year. After one year, you should be able to sell the building...
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