A standard "money demand" function used by macroeconomists has the formIn(m) = Po + B₁In(GDP) + B₂R,Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent peryear. Supposed that B₁ = 2.32 and B₂ = -0.02.What is the expected change in m if GDP increases by 9%?The value of m is expected toby approximately %.(Round your response to the nearest integer)

To find the expected change in m when GDP increases by 9%, we can use the given money demand…

Answered: A standard "money demand" function used…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 5WNG

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A standard "money demand" function used by macroeconomists has the form In(m)=Bo+B₁In(GDP) + B₂R, Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that B₁ = 1.51 and ₂ = -0.07. What is the expected change in m if GDP increases by 6%? The value of m is expected to (Round your respon by approximately %. ger) increase decrease
Give typing answer with explanation and conclusion A standard "money demand" function used by macroeconomists has the form ln(m)=β0+β1ln(GDP)+β2R, Where m is the quantity of (real) money, GDP is the value of (real) gross domesticproduct, and R is the value of the nominal interest rate measured in percent per year. Supposed that β1 = 2.66 and β2 = −0.05. A) What is the expected change in m if GDP increases by 4%? The value of m is expected to_________(increase or decrease ) by approximately ________% (Round your response to the nearest integer) B) What is projected to change in m if the interest rate increases form 2% to 6% ? The value of m is expected to ________(increase/decrease) by approximately ________% (Round your response to the nearest integer)
We would expect that the level of income that would equate total demand for and total supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate)
Suppose that the real money demand function is L(Y,r+πe)=0.3Y÷ (r+πe) Where Y is real output, r is the real interest rate, and πe is the expected rate of inflation. Real output is constant over time at Y = 1500. The real interest rate is fixed in the goods market at r = 0.5 per year. Suppose that the nominal money supply is growing at the rate of 10% per year and that this growth rate is expected to persist for ever. Currently, the nominal money supply is M = 400. What are the values of the real money supply and the current price level? (Hint: What is the value of the expected inflation rate that enters the money demand function?). Suppose that the nominal money supply is M = 400. The Bank of Namibia announces that from now on the nominal money supply will grow at the rate of 5% per year. If everyone believes this announcement, and if all markets are in equilibrium, what are the values of real money supply and the current price level? Explain the effects on the…
Total demand for money (Dm) = Transactions demand (D;) + Asset demand for money (Da) (a) Assume that each dollar held for transactions purposes is spent on the average five times per year to buy final goods and services. If the nominal GDP is $10,000 billion ($10 trillion), what is the transaction demand (Di)? $ billion, because (b) The table below shows the asset demand at certain rates of interest. Using your answer to part (a) complete the table to show the total demand for money at various rates of interest. Interest rate Asset demand Total demand (in %) (billions), (Da) (billions), (Dm) 10 $ 30 $. 8 60 6 90 4 120 (c) If the money supply is $2,060 billion, what will be the equilibrium rate of interest? money supply (Sm) is equal to total demand (Dm). (d) If the money supply rises, the equilibrium rate of interest will (rise, fall, stay the same ). (e) If GDP rises, the equilibrium rate of interest will ( rise, fall, stay the same ). %, where
The demand for real money balances is given by , where M is the quantity of money, P is the price level, Y is output, and i is the nominal interest rate which is measured in percent. At the beginning of the year, the nominal interest rate is 5%. Over the year, the monetary base increases by 4%, the money multiplier increases by 2%, the output increases by 1% percent, and the nominal interest rate decreases by 10 BASIS POINTS. (a) If the ex ante real interest rate equals 0.5%, find the expected inflation rate at the beginning of the year. (b) Calculate the percentage change in the velocity of money. (c) [In answering this question, you are allowed to use the approximations regarding percentage changes; see page 4 of the math review (slide set 3).] Calculate the actual inflation rate. (d) Is it true that purchasing power was transferred from lenders to borrowers?
Assume that the demand for real money balance (M / P) is M / P = 0.8Y – 200i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate r is fixed at 5 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 2,500, P is 1.2, and the growth rate of nominal money is 2 percent, what must i and M be? Show all your work, show formula used and explain why.
The income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is n₁ = -0.06. Suppose that the central bank increases the money supply by 2.6%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate? -0.3 (or -30%) 0.3 (or 30%) -0.1 (or -10%) 0.1 (or 10%)
Thank you for answering Exercise 5. Please answer Exercise 6, thank you.
11
2. Suppose that in the U.S., the income velocity of money (V) is constant. Suppose, too, that every year, real GDP grows by 2.5 percent (%ΔY/year = 0.025) and the supply of money grows by 10 percent (%ΔM/year = 0.10). a. According to the Quantity Theory of Money, what would be the growth rate of nominal GDP = P×Y? Hint: %Δ(X×Y)  %ΔX + %ΔY.
Assume the money demand function for this economy is a function of income (Y) and a constant (k) in the following way: Demand for Money = kY In 2015, real money balances were .............. This implies that people want to hold ............. of every euro of income in the form of money.

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