Suppose the economy is prone to shocks from the money demand. As a result, the economy’s...
Suppose the economy is prone to shocks from the money demand. As a result, the economy’s output will be __________ stable when the central bank targets _____________.
Homework Answers
Suppose the economy is prone to shocks from the money demand as a result the economy output will be decreases and stable when the central bank target to increase the money supply by lowering the interest rate.
If in the economy there are shock from the money demand then purchasing power of the people may be decreases and due to which economy output will also decreases
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Suppose the economy is prone to shocks from the money demand. As
a result, the economy’s...
"The money supply of an economy increases when the central bank simultaneously decreases the reserve requirement...
"The money supply of an economy increases when the central bank simultaneously decreases the reserve requirement and sells government bonds in open market." Explain whether this statement is true, false or uncertain. (6 marks) What should money growth rate be if real output grows 4% per year, velocity grows 2% per year, and the central bank targets inflation to be 2% per year? (4 marks) What is the inflation tax? Explain. (6 marks) Explain (with the aid of diagrams) whether...
Assume that the economy is hit with successive positive demand shocks, lowering unemployment and inflation. What...
Assume that the economy is hit with successive positive demand shocks, lowering unemployment and inflation. What policy would the central bank pursue if the decrease in inflation lowered inflation below their target (assuming the CB is operating under an inflation rule for monetary policy).
2. The following are the money demand and money supply functions in an economy. M=8,000 :...
2. The following are the money demand and money supply functions in an economy. M=8,000 : M-25000(0.4-i) Answer the following questions: (a.) Calculate the equilibrium interest rate. (5%) (6.) Suppose the central bank falls the equilibrium interest rate to 5%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate ? (5%)
2. The following are the money demand and money supply functions in an economy M-8,000 M-25000(0.4-i)...
2. The following are the money demand and money supply functions in an economy M-8,000 M-25000(0.4-i) Answer the following questions (a.) Calculate the equilibrium interest rate. (5%) (b.) Suppose the central bank falls the equilibrium interest rate to 5 %,will there be excess money supply or money demand ? What monetary policy should be followed to reach the new equilibrium interest rate ? (5 %)
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...
Consider an economy with the following Money market information. Is the past year inflation rate was...
Consider an economy with the following Money market information. Is the past year inflation rate was 4%, the output grew by 5%, and the nominal interest rate on non-monetary assets grew by 2.5%. Moreover, we know that the central bank of this economy increased the Money supply of economy by 6%. As an economist you know that the interest elasticity of Money demand of this economy is -0.2. However, you don’t have any information about the income elasticity of Money...
suppose a country has perfectly interest elastic investment demand and low interest elasticity of money demand.Uesing...
suppose a country has perfectly interest elastic investment demand and low interest elasticity of money demand.Uesing Is-lm analysis, explain the effect of an increase in money demand due to non income determinant on the output and interest rate of this economy when money stock target is uesd as intermediate target. how the result differs from interest rate targeting? which option is better for the economy of this country;monetary or interest rate targeting? justify answer pleas.
19. Suppose that the central bank must follow a rule that requires it to increase the...
19. Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equi- librium and aggregate demand shifts right, what must the central bank do, and what will happen to output? a. The central bank must decrease the money supply, which will move output back toward its long-run level. b. The central bank...
Consider the following two independent cases for an economy, which is facing a prolonged recession. In...
Consider the following two independent cases for an economy, which is facing a prolonged recession. In the first case, the government decides to increase its purchases by increasing its expenditure on infrastructure development. How does this increased expenditure affect the economy’s aggregate demand and output level? In the second case, if the central bank of the country increases the interest rate, how does it affect the economy’s aggregate demand schedule and the output?
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...
2. The following are the money demand and money supply functions in an economy. M=8,000 : M-25000(0.4-i) Answer the following questions: (a.) Calculate the equilibrium interest rate. (5%) (6.) Suppose the central bank falls the equilibrium interest rate to 5%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate ? (5%)
2. The following are the money demand and money supply functions in an economy M-8,000 M-25000(0.4-i) Answer the following questions (a.) Calculate the equilibrium interest rate. (5%) (b.) Suppose the central bank falls the equilibrium interest rate to 5 %,will there be excess money supply or money demand ? What monetary policy should be followed to reach the new equilibrium interest rate ? (5 %)
19. Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equi- librium and aggregate demand shifts right, what must the central bank do, and what will happen to output? a. The central bank must decrease the money supply, which will move output back toward its long-run level. b. The central bank...
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...
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