1. Let’s consider a hypothetical economy where this year’s money supply is Tk.400, nominal GDP is Tk. 20000 and real GDP is Tk. 5000. a) Define quantity theory of money. b) Calculate the price level. c) Calculate the velocity of money. d) Suppose the central bank changes the money supply so that the new money supply is Tk. 200, calculate the new price level. e) Show stages b and d on a graph. #note: must needed e number ans

1. Let’s consider a hypothetical economy where this year’s money supply is Tk.400, nominal GDP is Tk. 20000 and real GDP is Tk. 5000. a) Define quantity theory of money. b) Calculate the price level. c) Calculate the velocity of money. d) Suppose the central bank changes the money supply so that the new money supply is Tk. 200, calculate the new price level. e) Show stages b and d on a graph. #note: must needed e number ans

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter13: Monetary Policy

Section: Chapter Questions

Problem 6E

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Let’s consider a hypothetical economy where this year’s money supply is Tk.400, nominal GDP is Tk. 25000 and real GDP is Tk. 5000. a) Define the Quantity Theory of Money. b) Calculate the price level. c) Calculate the velocity of money. Answer Must be correct. Do all step and calculation.
1. Let’s consider a hypothetical economy where this year’s money supply is Tk.100, nominal GDP is Tk. 40000 and real GDP is Tk. 5000.a) What does the quantity theory of money say?b) Calculate the price level.c) Calculate the velocity of money.d) Suppose the central bank changes the money supply so that the new money supply is Tk. 500, calculate the newprice level.
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Question 6. Suppose that money supply and money demand determine the price level (P) in an economy. As shown in the equation below, in equilibrium, money demand equals to money supply. Equilibrium M L(r +Er,Y) P The supply of real money balances Real money demand where M is the quantity of money, P is the price level, r is the real interest rate, En is the expected inflation, and Y is the national income. a. Does the real money demand positively or negatively depend on nominal interest rate, į =r+Ex? Does the real money demand positively or negatively depend on national income, Y? Why? Briefly explain your answer. b. For given values of r, Y and M, explain how nominal interest rate (i), real money demand, and price level (P) respond to an increase in Er. Briefly explain your answer.
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