Homework Answers
Decrease in money supply will reduce cash holdings by people which reduce willingness to pay for goods by consumers. Reduced willingness to pay will reduce aggregate demand in an economy and shift demand curve to its left from AD to AD1. It reduces the price level from P to P1 and output level from Y to Y1.
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Question 2. (12 marks) The quantity theory of money states that the quantity of money available...
The quantity theory of money states that the quantity of money available determines the price level...
The quantity theory of money states that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate. Using an appropriate diagram, explain the adjustment process in the case of decrease in the money supply.
1. The quantity theory of money states that the fed: A) Has complete control of the...
1. The quantity theory of money states that the fed: A) Has complete control of the level of production B) Has to be extremely careful when using monetary policy to figure out the level of production C) determines the price/output D) Has zero control over levels of production E)Has zero control over price level 2. To create a 3% growth in an economy, monetarists think that the money supply should: a) increase yearly by more than 3% b) increase yearly...
According to the quantity theory, the size of the money determines the price level. Assume the following: - The rate of...
According to the quantity theory, the size of the money determines the price level. Assume the following: - The rate of circulation of the money (): 14 - The money supply in year 1 (: 600 billion - Money supply in year 2 (636 billion - GDP in year 1 (: 4200 billion - GDP in year 2 (: 4343 billion Calculate inflation between year 1 and year 2!
QUESTION 10 According to the quantity theory of money, if the money supply, M, increases by...
QUESTION 10 According to the quantity theory of money, if the money supply, M, increases by 10%, then A. velocity increases by 10%. B. the rate of inflation (in %) increases by 10. C. the nominal GDP increases by 10%. D. none of the above. 10 points QUESTION 11 According to the quantity theory of money and the classical model, changes in nominal money supply, M, has A. no effect on real variables. B. no effect on inflation rate....
1) Show the quantity equation. Calculate velocity of money for each year. (3 points) 2) Can...
1) Show the quantity equation. Calculate velocity of money for
each year. (3 points)
2) Can you turn quantity equation into the quantity theory of
money? Why? Or Why not? (2 points)
3) Calculate an inflation rate from 2019 to 2020 by using the
quantity theory of money equation, which means that percentage
change in price level is equal to money growth rate minus economic
growth rate. (2 points)
Year Money Supply (Trillions) Price Level (GDP deflator) Real GDP (Trillions)...
4. Money growth and inflation. Use the quantity theory of money to answer the following questions...
4. Money growth and inflation. Use the quantity theory of money to answer the following questions (a) (3 points) Assuming that the velocity of money is constant, if a country has an average annual growth rate of real GDP equal to 6%, then what is the average annual rate of money growth that would required to produce an average rate of inflation of 3%? Show your work. (b) (3 points) True or false: According to the quantity theory of money,...
Using the quantity theory of money, suppose V is constant, money M grows at 12%, real...
Using the quantity theory of money, suppose V is constant, money M grows at 12%, real income Y grows at 4%, and the nominal interest rate is 11%. a) What is the real interest rate? b) Now suppose that real income grows at 6% and money supply growth remains at 12%, what is the real interest rate? c) What must be the new money growth rate to maintain the real interest rate at the level from part (a)?
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),...
According to the Purchasing Power Parity Theorem and the Quantity Theory of Money, other things being...
According to the Purchasing Power Parity Theorem and the Quantity Theory of Money, other things being equal, which of the following would cause the price of UK pound (r = US$/UKpound) to fall: a) A decrease in U.S. real GDP b) A decrease U.K. inflation rate c) An increase in U.S. inflation rate d) A decrease in U.S. money supply e) a decrease in UK money supply
the quantity theory of money proposes that an increase in money supply will reflect in -increase...
the quantity theory of money proposes that an increase in money supply will reflect in -increase in the velocity of money -increase in the price level -decrease in the price level -decrease in the output -increase in the output
1) Show the quantity equation. Calculate velocity of money for
each year. (3 points)
2) Can you turn quantity equation into the quantity theory of
money? Why? Or Why not? (2 points)
3) Calculate an inflation rate from 2019 to 2020 by using the
quantity theory of money equation, which means that percentage
change in price level is equal to money growth rate minus economic
growth rate. (2 points)
Year Money Supply (Trillions) Price Level (GDP deflator) Real GDP (Trillions)...
4. Money growth and inflation. Use the quantity theory of money to answer the following questions (a) (3 points) Assuming that the velocity of money is constant, if a country has an average annual growth rate of real GDP equal to 6%, then what is the average annual rate of money growth that would required to produce an average rate of inflation of 3%? Show your work. (b) (3 points) True or false: According to the quantity theory of money,...
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),...
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