Keynes's model of the demand for money suggests that velocity is related to A. negatively, interest rates B. positively, interest rates C. positively, stock prices D. positively, bond values
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- 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?LEAS Od A-D-B SRAS, SEAS MAS Red GDP Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in velocity under monetarist assumptions? Ⓒ&A-E-B Ob.B-A OCB-D-ASuppose that when the central bank increases the interest rate by 1 percentage point that investment spending falls by $100 millon in Ecoland. a. If the marginal propensity to spend is 0.75, what will be the total change in real GDP of an increase in the interest rate of 1 percentage point? Assume that the price level is held constant. Explain. b. What happens to bond prices? Explain in words. c. How does the effect of monetary policy depend on the sensitivity of investment to the interest rate? Explain. d. What effect will the increase in interest rates have on asset prices and wealth? How might this also influence spending and thus GDP?
- Both the portfolio choice and Keynes’s theories of thedemand for money suggest that as the relative expectedreturn on money falls, demand for it will fall. Whydoes the portfolio choice approach predict that moneydemand is affected by changes in interest rates? Whydid Keynes think that money demand is affected bychanges in interest rates?Which of the following statements about the income velocity of money (V) is NOT correct? a. It is an indicator of the demand for money as an asset (store of wealth). b. It is equal to the ratio of GDP to some measure of the stock of money such as M2. c. It is influenced by the public expectations regarding future rates of inflation. d. none of the above.Suppose now that economists expect the velocity ofmoney to increase by 50% as a result of the monetarystimulus. What will be the total increase in nominalGDP?
- Give typing answer with explanation and conclusion Suppose that velocity rises but incomes have not changed. What do you think happened to interest rates, according the Keynesian liquidity preference theory why?Suppose you have the following monetary asset information:Cash in circulation: $300bDemand deposits: $400bTraveler’s checks: $50bSaving accounts: $2000bMoney Market Mutual Funds: $1000bShort term time deposits: $500ba. Calculate M1 and M2.b. Recall that the quantity theory of money states that MV = PT. If the velocity ofmoney is presumed fairly constant, how is it helpful to measure the money supply(whether M1 and M2) for purposes of predicting inflation?If the money supply increases by 50%, then in the long run, we can assume that _____ A. Both inflation and real GDP will increase B.The price level will increase by about 50% C. Velocity may adjust in response to the influx of cash D.Any of the above are possible
- Why does the Keynesian view of the demand for moneysuggest that velocity is unpredictable?According to neo-classical economics, if velocity is constant, the value of money falls when: Oa. Either money demand or money supply shifts right Ob. Money demand shifts left or money supply shifts right Oc Either money demand or money supply shifts left Od. Money demand shifts right or money supply shifts leftIf a central bank uses the tools of monetary policyto reduce the demand for goods and services, thelikely result is _________ inflation and _________unemployment in the short run.a. lower; lowerb. lower; higherc. higher; higherd. higher; lower