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Calculate what happens to nominal GDP if velocity
remains constant at 4 and the money supply increases
from $250 billion to $375 billion
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- If the demand for money depends positively on real income and depends inversely on the nominalinterest rate, what will happen to the price level today if the central bank credibly announces thatit will decrease the money growth rate in the future, but it does not change the money supplytoday?Suppose that this year's money supply is $500 bilion, nominai GDP is $10 trillion, and real GDP is $5trillion. The price level is . and the velocity of money is Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. ar the Fed keeps the money supply constant, the price level will and nominal GDP will True or False: If the Fed wants to keep the price level stable instead, it should decrease the money supply by 4% next year. True False Ir the Fed wants an inflation rate of 10 percent instead, it should the money supply by (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in .)Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
- 1. Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.Suppose a researcher discovers that a measure of thetotal amount of debt in the U.S. economy over thepast 20 years was a better predictor of inflation andthe business cycle than M1 or M2. Does this discoverymean that we should define money as equal to the totalamount of debt in the economy?Assume GDP is currently $10,800 billion per year and the quantity of money is $540 billion. a. What is the velocity of money?
- Suppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?Suppose that the money demand function is(M/P)d = 1,000 - 100r, where r is the interest rate in percent. Themoney supply M is 1,000 and the price level Pis 2.a. Graph the supply and demand for real moneybalances.b. What is the equilibrium interest rate?c. Assume that the price level is fixed. Whathappens to the equilibrium interest rate if thesupply of money is raised from 1,000 to 1,200?d. If the Fed wishes to raise the interest rate to7 percent, what money supply should it set?Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?
- Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.2. Assume that a particular bank has excess reserves of Php800,000 and checkabledeposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank’sactual reserves?3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider thefollowing transactions: Owners of the bank sold shares of stocks to the public (which includes owners’equity) amounting to P1,000,000. To fully…Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checkingaccount at the Bank of Uchenna. By how much does the money supply immediately change as aresult of like's deposit?A decrease in the interest rate, other things beingequal, causes a (an)a. upward movement along the demand curvefor money.b. downward movement along the demandcurve for money.c. rightward shift of the demand curve for money.d. leftward shift of the demand curve for money.