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4. Suppose a country has a money demand functiorn (M/P -kY, where k is a constant...
Suppose a country has a money demand function (M/P)d = kY, where k is a constant...
Suppose a country has a money demand function (M/P)d = kY, where k is a constant parameter. The money supply grows by 12 percent per year, and the real income grows by 4 percent per year. A) What is the average inflation rate? B) How would inflation be different if real income growth were higher? Explain. C) How do you interpret parameter k? What is its relationship to velocity of money? D) Suppose instead of a constant money demand function,...
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...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5)...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the quantity of money, P is the price lelve, Y is real output, and i is the nominal interest rate (measured in percentage points.) a) If the economy is growing g% per year and velocity is growing twice as fast what are the growth rates in real money balances and the interest rate? b) Supposing the money supply is growing at 3% per year, what...
Suppose that the velocity of circulation of money is constant and real GDP is growing at...
Suppose that the velocity of circulation of money is constant and real GDP is growing at 2 percent a year. a) To achieve an inflation target of 2 percent a year, at what rate would the central bank (Bank of Canada) grow the quantity of money? b) At what growth rate of the quantity of money would deflation be created?
A. Assume that the demand for real money balance (M/P)d is M/P = 0.4Y – 10i....
A. Assume that the demand for real money balance (M/P)d is M/P = 0.4Y – 10i. National income is 30,000 and the price level is 100 and the growth rate of nominal money is 2 percent. The real interest rate r is fixed at 3 percent. Also assume that the expected inflation rate equals the rate of nominal money growth. B. What is the quantity of money in the economy?
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.
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)?
2. (20 points) According to classical macroeconomics policy, money supply shocks are "neutral" (a) Explain what...
2. (20 points) According to classical macroeconomics policy, money supply shocks are "neutral" (a) Explain what this means. (b) Based on that theory, how would a 5% increase in a nation's money supply affect its real wage rate (), all else equal? I (c) According to the quantatity of money, how would a 5% increase in money supply affect the price of goods and services (P), all else equal? (d) To be consistent with both theories, what would have to...
7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and money supply growth is 4%. Assume that...
7. Assume that output growth in the U.S. is 2%, money demand (L) is constant and money supply growth is 4%. Assume that output growth in China is 5%, L is constant and money supply growth is 9%. a. Assume that relative PPP and the quantity theory of money holds. What is the growth rate of the dollar-China exchange rate (%∆E$/China)? b. What should money supply growth be in China if China wants to fix its currency to the dollar?...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
2. (20 points) According to classical macroeconomics policy, money supply shocks are "neutral" (a) Explain what this means. (b) Based on that theory, how would a 5% increase in a nation's money supply affect its real wage rate (), all else equal? I (c) According to the quantatity of money, how would a 5% increase in money supply affect the price of goods and services (P), all else equal? (d) To be consistent with both theories, what would have to...
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