Suppose the US money supply is reduced. Briefly explain how the following variables will change in...
Suppose the US money supply is reduced. Briefly explain how the following variables will change in each of the following phases: When inflation expectations change
a. Real money supply
b. Interest rate
c. Exchange rate (dollars per euro)
d. Price level
Homework Answers
Ans
1 real money supply rises because prices fall
2 interest rate rises as money supply falls
3 exchange rate falls due to fall in dollar supply and also due to less imports as prices in usa fall
4 price level falls absolutely
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Suppose the US money supply is reduced. Briefly explain how the
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The equation of exchange states that the product of the quantity
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??=??
Because the percentage change in the product of two variables is
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where %Δ means "percentage change in."
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%Δ?+%Δ?=%Δ?+%Δ?
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