Homework Answers
1.
a.
Rearranging equation gives:
M(3i) = PY
According to quantity theory of money, Velocity here is:
V = 3i
b.
Since V = 3i, permanent rise in nominal interest rate will cause permanent rise in Velocity (V).
If you are satisfied with the answer, please provide a positive rating. Feel free to comment in case of queries.
Have a nice day ahead!
Add Answer to:
1. Consider a money demand function that takes the form (M/P)' = Y/3i, where Mis the...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the quantity of money, P is the price lelve, Y is real output, and i is the nominal interest rate (measured in percentage points.) a) If the economy is growing g% per year and velocity is growing twice as fast what are the growth rates in real money balances and the interest rate? b) Supposing the money supply is growing at 3% per year, what...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5)...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
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...
Problem 1. Money. In a closed economy in the long run, the liquidity function is given...
Problem 1. Money. In a closed economy in the long run, the liquidity function is given by L(Y, 1) = Y – 2001. Output Y is constant and equal to 1600. The nominal interest rate į is measured in percentage points. The real interest rate is 4%. (A) Derive the velocity of money V. (B) The central bank keeps the nominal money supply M constant at 800, and the public expect the money supply to be constant. Find the price...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
Real money demand Y-i(nominal) , the broad nominal money supply M-mR, where m is bank deposit...
Real money demand Y-i(nominal) , the broad nominal money supply M-mR, where m is bank deposit multiplier and R- bank reserves. Suppose that price level P-2 and stays constant. Aggregate demand is given by Y 100-im (a) If output is 90, find the level of interest rates and the level of bank reserves. (b) Suppose, autonomous aggregate demand falls from 100 to 95, and the deposit multiplier falls from m to m/2. How much must reserves increase to preserve the...
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd =...
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd = .2Y/i1/2) a.) Derive an expression for the velocity of money. What does this velocity depend on? Explain why this dependency may occur. b.) Calculate the velocity if the nominal interest rate i is 4 percent. c.) Assume the nominal interest rate i is still 4 percent. If output Y is 1,000 units and the money supply M is $1,200, what is the price level...
Hi I need help on parts E-G. Thank you very much Question 5. Money and Inflation....
Hi I need help on parts E-G. Thank you very much
Question 5. Money and Inflation. The demand for real money is
given by
Y L(Y, i) = Y / ?i
Here Y is real GDP and i is the nominal interest rate measured
in percentage points. The future
inflation ?e is expected to be zero.
(A) Derive an expression for the velocity of money. Comment on
the form of your answer: is velocity
a constant number? If not, why...
Question 2: Money market Suppose that the money demand function is (M/P) = 0.75 Y -...
Question 2: Money market Suppose that the money demand function is (M/P) = 0.75 Y - 200r The money supply M is 6000 and the price level is 2. a. Graph the supply for real money balances on a new graph (label it "figure 3"), and label the supply of real money balances (M/P). g. Suppose that the income is 6000. Complete Table 1 and draw the demand for real money balances curve ((M/P'] in figure 3. Find the value...
function of the nominal interest rate (i): 0 = 0.3-3i. 1. Suppose that bank reserves (8)...
function of the nominal interest rate (i): 0 = 0.3-3i. 1. Suppose that bank reserves (8) The money multiplier (m) is m = (cr + 1)/(cr +0), where cr is the currency-deposit ratio. Initially, suppose the real interest rate (r) equals 0.03, the expected inflation rate (Pe) equals 0.03, and the currency-deposit ratio equals: cr = The real money demand function is L(Y, i) 0.8Y-1500i, where Y is the level of output. The monetary base equals 100. The price level...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
Problem 1. Money. In a closed economy in the long run, the liquidity function is given by L(Y, 1) = Y – 2001. Output Y is constant and equal to 1600. The nominal interest rate į is measured in percentage points. The real interest rate is 4%. (A) Derive the velocity of money V. (B) The central bank keeps the nominal money supply M constant at 800, and the public expect the money supply to be constant. Find the price...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
Real money demand Y-i(nominal) , the broad nominal money supply M-mR, where m is bank deposit multiplier and R- bank reserves. Suppose that price level P-2 and stays constant. Aggregate demand is given by Y 100-im (a) If output is 90, find the level of interest rates and the level of bank reserves. (b) Suppose, autonomous aggregate demand falls from 100 to 95, and the deposit multiplier falls from m to m/2. How much must reserves increase to preserve the...
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd = .2Y/i1/2) a.) Derive an expression for the velocity of money. What does this velocity depend on? Explain why this dependency may occur. b.) Calculate the velocity if the nominal interest rate i is 4 percent. c.) Assume the nominal interest rate i is still 4 percent. If output Y is 1,000 units and the money supply M is $1,200, what is the price level...
Hi I need help on parts E-G. Thank you very much
Question 5. Money and Inflation. The demand for real money is
given by
Y L(Y, i) = Y / ?i
Here Y is real GDP and i is the nominal interest rate measured
in percentage points. The future
inflation ?e is expected to be zero.
(A) Derive an expression for the velocity of money. Comment on
the form of your answer: is velocity
a constant number? If not, why...
Question 2: Money market Suppose that the money demand function is (M/P) = 0.75 Y - 200r The money supply M is 6000 and the price level is 2. a. Graph the supply for real money balances on a new graph (label it "figure 3"), and label the supply of real money balances (M/P). g. Suppose that the income is 6000. Complete Table 1 and draw the demand for real money balances curve ((M/P'] in figure 3. Find the value...
function of the nominal interest rate (i): 0 = 0.3-3i. 1. Suppose that bank reserves (8) The money multiplier (m) is m = (cr + 1)/(cr +0), where cr is the currency-deposit ratio. Initially, suppose the real interest rate (r) equals 0.03, the expected inflation rate (Pe) equals 0.03, and the currency-deposit ratio equals: cr = The real money demand function is L(Y, i) 0.8Y-1500i, where Y is the level of output. The monetary base equals 100. The price level...
Most questions answered within 3 hours.
-
A pilot flying low and slow drops a weight; it takes 2.4 s to
hit the...
asked 52 seconds from now -
LSAT test scores are normally distributed with a mean of 157 and
a standard deviation of...
asked 1 minute ago -
You are testing a batch of pills. The manufacturer claims that
the standard deviation of their...
asked 43 seconds ago -
2.00 × 10^20 electrons flow through a cross section of a
3.60-mm-diameter iron wire in 5.00...
asked 6 minutes ago -
By exerting an effort of 115 pounds, you move a 300–pound crate
up an inclined plane...
asked 9 minutes ago -
A projectile is launched horizontally with an initial speed 20
m/s. After 4 seconds how far...
asked 15 minutes ago -
A pipe is open on both ends. The diameter of the pipe is 5.0 cm
and...
asked 27 minutes ago -
How many times more light does a 16-inch diameter telescope
mirror gather than your 2-inch telescope?
asked 29 minutes ago -
11.At present, the cost of the clean air and water regulations
is
A) higher then the...
asked 29 minutes ago -
2. How long would it take for 1.50 mol of water at 100.0 ∘C to
be...
asked 46 minutes ago -
According to the February 2008 Federal Trade Commission report
on consumer fraud and identity theft, 23%...
asked 58 minutes ago -
Data is only as good as its completeness. And we have all dealt
with incomplete data....
asked 54 minutes ago