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4. Money growth and inflation. Use the quantity theory of money to answer the following questions...
Question 6: Inflation and the quantity theory Suppose velocity is constant, the growth rate of real...
Question 6: Inflation and the quantity theory Suppose velocity is constant, the growth rate of real GDP is 3% per year, and the growth rate of money is 5% per year. Calculate the long-run rate of inflation according to the quantity theory in each of the following cases: (a) What is the rate of inflation in this baseline case? (b) Suppose the growth rate of money rises to 10% per year. (C) Suppose the growth rate of money rises to...
38. According to the quantity theory of money, the inflation rate equals A) money supply minus...
38. According to the quantity theory of money, the inflation rate equals A) money supply minus real GDP. 8) the growth rate of the money supply minus the growth rate of real GDP, C) real GDP minus the money supply. D) the growth rate of real GDP minus the growth rate of the money supply of money pre rate than reacop. A) money supporowing at a fidower rate the 39. The quantity theory of money predicts that in the long...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual inflation rate, and the expected real interest rate is 4%. Answer the following questions. Justify your answers. Does the quantity theory allow for money to be used for assets and risk diversification purposes? When the growth rate of money supply is 7% and the growth rate of real GDP is 3%, what is the nominal interest rate? Let the growth rate of money supply...
Recall the Quantity (Theory) of Money and its’ insights. M *V P * Y Converting to growth rates o...
Recall the Quantity (Theory) of Money and its’ insights. M *V P * Y Converting to growth rates over time leads to approximation M V P Y M V P Y g M gV gY Another article in the Wall Street Hippo reports that, “The Hoya Republic’s real economy has decreased by 25% since 2015. This week at the Annual Meetings of the IMF-World Bank in Washington D.C., the IMF’s World Economic Outlook 2019 forecasts inflation will hit 900% and...
Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador...
Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador the velocity of money is constant, real GDP falls by 1.4% per year, the stock on money grows by 8.9% per year, and the nominal interest rate is 4.5%. (a) According to the quantity theory, what must the inflation rate be in El Salvador? [4 Points] (b) Calculate the real interest rate in El Salvador [2 Points] (e) Suppose that the central bank decides...
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....
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c...
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c. is crucial for controlling inflation and stabilizing output d. promotes sensible fiscal policy. e. implies low interest rates. 33. You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a: a. 6 percent interest rate...
The equation of exchange states that the product of the quantity of money, M, and the...
The equation of exchange states that the product of the quantity
of money, M, and the velocity of money, V, equals
the product of the price level, P, and the quantity of
real output, Q:
??=??
Because the percentage change in the product of two variables is
approximately equal to the sum of the percentage changes in the
variables, the equation of exchange can be written in growth rate
form as
%Δ?+%Δ?=%Δ?+%Δ?
where %Δ means "percentage change in."
a. Suppose...
The figure below shows the growth in the money supply and average inflation rates for 160...
The figure below shows the growth in the money supply and
average inflation rates for 160 countries from 1991–2011. For most
countries, there is a one-to-one ratio between money growth and
inflation. For example, both the growth in the money supply and the
average inflation rate was close to 100% in Belarus.
Refer to the figure to answer the following questions.
1st attempt
Part 1 (1 point)
See Hint
Consider the countries that lie on the line, which shows a
one-to-one...
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...
Question 6: Inflation and the quantity theory Suppose velocity is constant, the growth rate of real GDP is 3% per year, and the growth rate of money is 5% per year. Calculate the long-run rate of inflation according to the quantity theory in each of the following cases: (a) What is the rate of inflation in this baseline case? (b) Suppose the growth rate of money rises to 10% per year. (C) Suppose the growth rate of money rises to...
38. According to the quantity theory of money, the inflation rate equals A) money supply minus real GDP. 8) the growth rate of the money supply minus the growth rate of real GDP, C) real GDP minus the money supply. D) the growth rate of real GDP minus the growth rate of the money supply of money pre rate than reacop. A) money supporowing at a fidower rate the 39. The quantity theory of money predicts that in the long...
Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador the velocity of money is constant, real GDP falls by 1.4% per year, the stock on money grows by 8.9% per year, and the nominal interest rate is 4.5%. (a) According to the quantity theory, what must the inflation rate be in El Salvador? [4 Points] (b) Calculate the real interest rate in El Salvador [2 Points] (e) Suppose that the central bank decides...
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c. is crucial for controlling inflation and stabilizing output d. promotes sensible fiscal policy. e. implies low interest rates. 33. You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a: a. 6 percent interest rate...
The equation of exchange states that the product of the quantity
of money, M, and the velocity of money, V, equals
the product of the price level, P, and the quantity of
real output, Q:
??=??
Because the percentage change in the product of two variables is
approximately equal to the sum of the percentage changes in the
variables, the equation of exchange can be written in growth rate
form as
%Δ?+%Δ?=%Δ?+%Δ?
where %Δ means "percentage change in."
a. Suppose...
The figure below shows the growth in the money supply and
average inflation rates for 160 countries from 1991–2011. For most
countries, there is a one-to-one ratio between money growth and
inflation. For example, both the growth in the money supply and the
average inflation rate was close to 100% in Belarus.
Refer to the figure to answer the following questions.
1st attempt
Part 1 (1 point)
See Hint
Consider the countries that lie on the line, which shows a
one-to-one...
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...
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