Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 15, Problem 3WNG
To determine
The change in money supply.
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How does money velocity contribute to the observation that in countries with high rates of inflation, the inflation rate exceeds the rate of money growth?
he annual average percentage change in Real GDP is 2.7%, and the annual average percentage change in velocity is 1.1%.
Using the monetary rule, what percentage change in the money supply will keep prices stable (on average)?
Suppose the velocity of money is stable for a year in Germany. If real GDP grows by 2%, what is the money increase in Germany ?
Chapter 15 Solutions
Economics (MindTap Course List)
Ch. 15.1 - Prob. 1STCh. 15.1 - Prob. 2STCh. 15.1 - Prob. 3STCh. 15.4 - Prob. 1STCh. 15.4 - Prob. 2STCh. 15.4 - Prob. 3STCh. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QP
Ch. 15 - Prob. 5QPCh. 15 - Prob. 6QPCh. 15 - Prob. 7QPCh. 15 - Prob. 8QPCh. 15 - Prob. 9QPCh. 15 - Prob. 10QPCh. 15 - Prob. 11QPCh. 15 - Prob. 12QPCh. 15 - Prob. 13QPCh. 15 - Prob. 14QPCh. 15 - Prob. 15QPCh. 15 - Prob. 16QPCh. 15 - Prob. 17QPCh. 15 - Prob. 18QPCh. 15 - Prob. 1WNGCh. 15 - Prob. 2WNGCh. 15 - Prob. 3WNGCh. 15 - Prob. 4WNGCh. 15 - Prob. 5WNGCh. 15 - Prob. 6WNGCh. 15 - Prob. 7WNGCh. 15 - Prob. 8WNG
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- How would a doubling of velocity affect Real and Nominal GDP, assuming the money supply doesn’t changearrow_forwardBetween 1950 and 1975, the average annual rate of change in the money supply was slightly less than 4 percent. Has the Fed expanded the money supply more (or less) rapidly than this 4 percent long-term rate during the past 12 months? The past 24 months? Is the Fed's current monetary policy restrictive or expansionary? Explain.arrow_forwardAccording to the quantity theory of money equation, if the government increased the money supply by 5%, and we observed prices increase by 1% and real GDP increase by 2%, then the velocity of money: Increased by 2% Decreased by 5% Decreased by 2% Remained constantarrow_forward
- Which of the following best describes the cause-effect chain of an expansionary monetary policy? A) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. B) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.arrow_forwardHow do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.arrow_forwardUsing the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be...?arrow_forward
- Assume that money velocity is constant over time (v = v for all t). Suppose that the money supply grows at 5% (0.05) while real GDP grows at 3% (0.03). According to the quantitative theory of money, what should the inflation rate be? Round up to the second decimal point.arrow_forwardWhich of the following is the sequence of events following an expansionary monetary policy? A ) money demand increases ⇒ interest rates increase ⇒ planned investment falls and aggregate output falls B ) aggregate output falls ⇒ the demand for money falls ⇒ interest rates rises ⇒ planned investment decreases C ) interest rates increase ⇒ planned investment decreases ⇒ aggregate output decreases ⇒ money demand decreases D ) interest rates decrease ⇒ planned investment increases ⇒ aggregate output increases ⇒ money demand increasesarrow_forward"Considering the Taylor Rule for monetary policy, which action would a central bank most likely take if the actual inflation rate is below the target inflation rate and the real GDP is above the potential GDP? A) Increase the interest rate to reduce inflation. B) Decrease the interest rate to stimulate inflation. C) Keep the interest rate unchanged, as the effects on inflation and GDP are offsetting. D) Increase the money supply to reduce the real GDP to its potential level.arrow_forward
- What are the tools of monetary policy? a) government spending and taxes b) money supply and interests rates c) money demand and interest rates d) government supply and tax ratesarrow_forwardDo not type in dollar signs or round any of your answers. In year one, the money supply (M) is equal to 500, the velocity of money (V) is 5, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 530.4 and velocity is unchanged. If the economy grew at the rate of 4 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 500 to 530.4, the price level rose from 1.0 to indicating that the inflation rate was percent.arrow_forwardConsider the following data for the United States: On October 01, 2020, M1 was $17,609 billion, the price level was 1.144, and real GDP was $18,794 billion in base-year dollars. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Using the information provided above, the income velocity of money was (Enter your response rounded to two decimal places.)arrow_forward
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