Explain the logic of the monetary neutrality and why changes in the quantity of money only...
Explain the logic of the monetary neutrality and why changes in the quantity of money only affect nominal variables and not real variables. Do you agree that monetary neutrality approximates the behavior of the economy in the long run? Why or why not?
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Homework Answers
There will be no effect on the real interest rate if the money is neutral. If we see the relationship between the real interest rate , inflation and nominal interest rates then it will be as-
Real interest rate = nominal interest rate - inflation rate.
Therefore the dependency of real interest rates is mainly on demand and supply of lonable funds.
The neutrality of money only affects nominal variable and not the real variables in the long run. Therefore when the rate of growth of money is increased by the fed then the there will increase in the inflation as well as the nominal interest rates and real interest rates remains unaffected.
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Explain the logic of the monetary neutrality and why changes in
the quantity of money only...
Explain the logic of the monetary neutrality and why changes in the quantity of money only...
Explain the logic of the monetary neutrality and why changes in the quantity of money only affect nominal variables and not real variables. Do you agree that monetary neutrality approximates the behavior of the economy in the long run? Why or why not?
080302 Monetary neutrality implies that an increase in the quantity of money will increase employment increase...
080302 Monetary neutrality implies that an increase in the quantity of money will increase employment increase the price level increase the incentive to save. not increase any of the above. QUESTION 5 080304 The classical dichotomy argues that changes in the money supply affect both nominal and real variables. affect neither nominal nor real variables. affect nominal variables, but not real variables. do not affect nominal variables, but do affect real variables. QUESTION 6 080305 According to the principle of...
4. Which of the following statements about monetary neutrality is accurate? (x) Printing money to finance...
4. Which of the following statements about monetary neutrality is accurate? (x) Printing money to finance government expenditures has profound effects on real variables in the long run, but is neutral in the short run. (y) Although monetary policy is neutral in the long run, it may effect real variables in the short run. (z) In the long run when money is neutral, nominal interest rates increase when the money supply growth rate increases, but real interest rates do not....
In the context of the Quantity Theory of Money explain the relationship between changes in money...
In the context of the Quantity Theory of Money explain the relationship between changes in money supply and inflation. Why do you think this relationship should hold only in the long-run? Explain.
1. Economists believe in the “Long-run neutrality of money”; what does that mean? If monetary policies...
1. Economists believe in the “Long-run neutrality of money”; what does that mean? If monetary policies help in the short run but do not help in the long run, should we not bother with those policies? What does this tell you about the current monetary policies of the Fed? 2. Application 3 in Chapter 15 (page 324) suggests increased health care expenditures will crowd out other expenditures. What component of GDP do you think will suffer? Using that same argument,...
1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure...
1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure is vertical and might shift? Money neutrality states that a change in the money supply affects_ (real/nominal) variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the __(short run/long run). 2. Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?
1. In the simple quantity theory of money, changes in the money supply affect the price...
1. In the simple quantity theory of money, changes in the money supply affect the price level, but not real GDP. Do you agree or disagree with this statement. Explain your answer. 2. What are the assumptions and predictions of the simple quantity theory of money? Does the simple quantity theory of money predict well?
9. What does the evidence from hyperinflations indicate with respect to the quantity theory of money?...
9. What does the evidence from hyperinflations indicate with respect to the quantity theory of money? (1 mark) a. Evidence shows that money growth and inflation moved together, which supports the quantity theory. b. Evidence shows that money growth and inflation moved together, which does not support the quantity theory. c. Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. d. Evidence shows that money growth and inflation did not...
Chapter 14. Question 2. For example, an increase in the money supply, a (real or nominal?)...
Chapter 14. Question 2.
For example, an increase in the money supply, a (real or
nominal?) variable, will cause the price level, a
(nominal or real?) variable, to increase but will
have no long-run effect on the quantity of goods and services the
economy can produce, a (nominal or real?)
variable. The separation of real variables and nominal variables is
known as (the classical dichotomy, price neutrality, or the
quantity theory?).
The horizontal axis of the model of aggregate demand...
Which statement best defines the velocity of money? (1 mark) a. It is the rate at...
Which statement best defines the velocity of money? (1 mark) a. It is the rate at which the central bank puts money into the economy. b. It is the long-term growth rate of the money supply. c. It is the money supply divided by nominal GDP. d. It is the average number of times per year a dollar is spent. In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in...
080302 Monetary neutrality implies that an increase in the quantity of money will increase employment increase the price level increase the incentive to save. not increase any of the above. QUESTION 5 080304 The classical dichotomy argues that changes in the money supply affect both nominal and real variables. affect neither nominal nor real variables. affect nominal variables, but not real variables. do not affect nominal variables, but do affect real variables. QUESTION 6 080305 According to the principle of...
1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure is vertical and might shift? Money neutrality states that a change in the money supply affects_ (real/nominal) variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the __(short run/long run). 2. Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?
Chapter 14. Question 2.
For example, an increase in the money supply, a (real or
nominal?) variable, will cause the price level, a
(nominal or real?) variable, to increase but will
have no long-run effect on the quantity of goods and services the
economy can produce, a (nominal or real?)
variable. The separation of real variables and nominal variables is
known as (the classical dichotomy, price neutrality, or the
quantity theory?).
The horizontal axis of the model of aggregate demand...
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