According to the quantity theory of money, if the long-run economic growth rate is 2.5%, by how much should the Fed increase the money supply if it wants inflation to be 2%?

For the quantity theory of money (Mv=PY), if v and Y were fixed, what would an increase in M do to P?

According to the long-run relationship between money growth, income growth, and the change in the price level, if European inflation is higher than U.S. inflation but money growth is the same, it must be that: a) real income growth in Europe and the United States is the same. b) real income growth in Europe is larger than real income growth in the United States. c) real income growth in the United States is higher than in Europe. d) the level of nominal income is higher in Europe than in the United States.

When would it be most appropriate for the Fed to increase the money supply: during a recession or when the economy is expanding? Why?

The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year.   a) What happens to prices?  b) What happens to nominal interest rate?  c) Why might the government be doing this?

Two tools the Federal Reserve would use to implement the decision to increase the federal funds would be Open market operations and the IOER rate. Show in a graph of the federal funds market the effect the tools mentioned above have on this market. What effect do the two tools used have on the interest rates faced by firms and households? What do you expect to happen to the money supply? What do you expect to happen to the inflation rate? How would you expect all these decisions to affect employment in the economy? How do the effects on the money supply and inflation rate align with what the Fed was hoping to attain(to achieve maximum employment and inflation at the rate of 2 percent over the longer run)?

part B

What is the role of the Federal Reserve (the Fed)? How much discretion should the Fed have? Should the Fed try to fine-tune the economy or simply keep money supply growing at a steady pace? Why?

"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.

Suppose the Federal Reserve (the US central bank) increases the money stock. Create a graph that explains the effect of the Fed's expansionary monetary policy in the Short Run.