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- Assuming that at equilibrium real money supply (M$/P) is equal to real money demand (Md /P), which is assumed to be a function of real income (Y), nominal interest rate (R), and technology (A) as follows: MS Y =A- R P (a) Specify the assumptions needed to uphold the prediction of quantity theory of money claiming that the ratio of money to GDP is constant in the long run.e (b) Assuming that the growth rate of Y is 4%, the growth rate of R is 0, and the growth rate of A is -1%, draw a diagram to indicate the relation between growth rate of MS (on the X-axis) and inflation rate (on the Y-axis).According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to increases in both the price level and real GDP. an increase in real GDP but does not change the price level. an increase in the price level but does not change real GDP. no change in either the price level or real GDP.Suppose the public expects a 7 percent inflation rate, while the Federal Reserve unexpectedly allows the money growth rate to be 4 percent. In the short run, we expect that investment spending by firms will and consumer durable spending will 000 decrease; decrease increase; increase decrease; increase increase; decrease
- Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The quantity of physical capital The size of the labor force The level of technological knowledge The inflation rate Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to (Rise/fall), which will: Not affect the long-run aggregate supply curve Shift the long-run aggregate supply curve to the right Shift the long-run aggregate supply curve to the left In the following table, determine how each event affects the position of the long-run aggregate supply (LRAS) curve. Direction of LRAS Curve…According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause a) prices to fall and output to remain unchanged. b) prices to rise and output to remain unchanged. c) prices to rise and output to rise d) prices to fall and output to fallSuppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The inflation rate C The price level C The level of technological knowledge The size of the labor force Suppose the economy produces real GDP of $70 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to which will: O Shift the long-run aggregate supply curve to the right O Shift the long-run aggregate supply curve to the left O Not affect the long-run aggregate supply curve PRICE LEVEL
- In the Keynesian theory, money wages do not fall in response to a decrease in aggregate deman True FalseSuppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship: P=A×MP=A×M • P=Price LevelP=Price Level • M=Money SupplyM=Money Supply • A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level?Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and prices
- For example, an increase in the money supply,(NORMINAL, REAL) a variable, will cause the price level, a (NORMINAL, REAL) variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a (REAL, NORMINAL) variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as (MONETARY, THE QUANITY, PRICE) .Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Use the information in the table and your previous answers. The money supply grew at a rate of % from 2009 to 2010 and the inflation rate (percentage change in prices) grew at a rate of % from 2009 to 2010. [Use one decimal place in your answer] 2009 2010 Quantity of Money $200 $216 Velocity of Money 10 Price Level $5.00 Quantity of Output 400 400An increase in the money supply will cause which of the following to occur? OPTIONS: a rightward shift of the aggregate supply curve a leftward shift of the aggregate demand curve a leftward shift of the aggregate supply curve a rightward shift of the aggregate demand curve
