What are the goals of monetary policy? maximum employment and stable prices zero unemployment and zero inflation zero unemployment and stable prices maximum employment and zero inflation
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- Suppose the Fed sets the growth in the money supply at 10%. Under the assumptions of the quantity theory of money and monetary neutrality, what will be the result in the long run? Both real GDP and the price level will grow, by a combined 10%. The price level will grow by 10%, and real GDP will be unchanged. The price level will be unchanged and real GDP will grow by 10%. The price level and real GDP will be unchanged.What are the three instruments of monetary control? Explain. Why does the Federal Reserve prefer to use open market operations? Explain. How can the Federal Reserve use its open market operations to expand or contract the nation’s money and credit supply? Explain in some detail. Describe the workings of the Federal Open market Committee which controls monetary policy. Give a detailed account of how monetary policy works to change interest rates, aggregate demand, and the macroeconomy.Consider the following scenario: a. In Argentina, the central bank needs to determine by how much to increase the money supply next year. Suppose they estimate an increase in the overall economic activity (real GDP) of 2.5% percent and have a target inflation rate of 4%. The velocity of money has been observed to be constant over the past many years. By what level should the central bank change the money supply to achieve its inflation target? b. Next year, the central bank of Argentina wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply? c. What is an "inflation tax", and how might it explain the creation of inflation by a central bank?
- The Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates." Explain the harmony among these goals in the long run. In the long run, ________. A. increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates B. low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment C. price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate D. price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowlyThe Fed wants to decrease the money supply when the economy is booming and inflationary pressures ________ in the economy.In the country Constantania, suppose the velocity of money is always the same. Last year, the money supply was $2 billion and real GDP was $5 billion. This year, the money supply increased by 6 percent, real GDP by 4 percent, and nominal GDP is $6.5 billion. a) Calculate the velocity of money and the price levels in the two years, and then calculate the inflation rate. b) Calculate the inflation rate using the formula AM/M + AV/V = AP/P + AY/Y, where the Greek letter A represents a change and the ratio AM/Mx 100 is the percentage change (or the rate of change) in M. Compare this result with the result you obtained in part a. Why could there be some difference? c) What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?
- The money supply in Freedonia this year is $150 billion. Nominal GDP is $750 billion and real GDP is $250 billion. Assuming that velocity of money is stable, real GDP grows by 2% this year, and the money supply does not change. What are the velocity, price level, and inflation rate this year?Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity? a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase. b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease. d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase e. The…The velocity of money in the small Republic of Sloagia is always the same. Last year, the money supply was $5 billion and real GDP was $ 20 billion. This year, the money supply increased by 5 percent, real GDP by 4.5 percent, and nominal GDP is $ 19 billion. Calculate the velocity of money The price level last year= The Price level this year = The Inflation rate=
- Thank you23. What is an implication of the neutrality of money in the long run? The economy's level of potential output will adjust to accommodate any change in the money supply. Changes to the money supply have no effect on either the price level or real GDP. In response to any change in the money supply, the demand for money will adjust to cancel out its effects on all macroeconomic variables. Changes to the money supply never have any effect on real GDP. In response to any change in the money supply, the economy's adjustment process will bring Y back to Y*, which is unaffected by the change in the money supply.Money market equilibrium depends on what the central bank targets. How does the money market adjust to the equilibrium? If the central bank targets _______. A. the short-term interest rate, the quantity of money demanded adjusts B. the quantity of money demanded, the short-term interest rate adjusts C. the monetary base, the quantity of money supplied adjusts D. the quantity of money, the short-term interest rate adjusts
