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.
Q: Assume that prices and wages adjust rapidly so that the markets for labor, goods, and assets are…
A: The wages and prices are flexible which keeps labor, goods and assets market always in equilibrium…
Q: In an economy at its steady state, real GDP, Y, increases at the rate g+n, where g is the…
A: We are going to solve this question using single variable optimisation technique.
Q: Consider the following version of the short run monetary model: MD/P = exp(-0.50*)*Y (UK) MS = M…
A: Given, The Money Demand in UK : MD/P=e(-0.50*i)*YMS=Mi=i_{US}+e^e-eM=1100Y=1506P=1i_US=0.04e^e=0.7
Q: Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to…
A: Central Bank of country uses monetary policy to achieve full employments and price stability. Repo…
Q: Assume the fiscal authority reduces taxes and, at the same time, the central bank engages in a…
A: Fiscal policy: fiscal policy refers to the policy used by the government to regulate money supply in…
Q: The economy is experiencing rapid inflation, pushing above 9%. Which fiscal policy action should…
A: Fiscal policy is a financial tool in the hands of the government to attain economic goal. It does so…
Q: Suppose that the nominal interest rate is zero, that is, R=0. a. In this case, in terms of real…
A: Answer-
Q: 1. In a Keynesian system, if the money demand function is given by Md = 135 +0.25Y-10r %3D then a…
A: LM curve shows the relationship of interest rate and the level of income in the economy that is GDP…
Q: n economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the…
A: The answer is given below
Q: If consumption depends positively on the level of real balances, and real balances depend negatively…
A: Real money balances are a measure of the purchasing power of the money in circulation in an economy.…
Q: Which household is likely to have a higher MPC, a low income household or a high income household?…
A: In financial matters, the marginal propensity to consume is a metric that evaluates prompted…
Q: Question 6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y- 100i, where Y is…
A: Answer: Given, Equation of real money balances: MP=0.0Y-100iWhere,Y=national incomei=nominal…
Q: Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we…
A: LM (liquidity and money supply) manifests the developments in the money market. IS (investment and…
Q: The LM curve is upward sloping since interest rate increase leads to output increase. TRUE or FALSE.…
A: The liquid preference-Money supply curve shows the point at which the money supply and money demand…
Q: Consider a classical economy in which the full employment rate of output is y, = 200, the money…
A: Given: Potential output (yt) = 200 Money demand (Mt / Pt)= 0.3 yt / Rt yt = 250-1000 rt Rate at…
Q: After the global financial crisis, there has been a heated debate about whether the sluggish…
A: (Q)After the global financial crisis, there has been a heated debate about whether the sluggish…
Q: B) Higher price level will increase the real value of many financial assets and therefore cause an…
A:
Q: If the statement is false or uncertain, please correct the statement to make it true. If the…
A: A closed economy is one in which products and services are not imported or exported, meaning that…
Q: Suppose Emma owns an investment portfolio. Last year, she earned a 3.65% portfolio return. During…
A: answer is given below
Q: Consider the following four demand functions for money: (1) InM, =a, +a̟InY," +a¸ In R_ +a¸ In P,+u,…
A: Linear regression is a statistical method that summarizes and studies the relationships between two…
Q: Suppose that the money demand function is (M/P)d = 1,000 - 100r, where r is the interest rate in…
A: Hi! thank you for the question but as per the guidelines, we answer up to 3 subparts at a time.…
Q: Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price…
A: Money supply (M) in an economy is equal to the nominal GDP divided by the velocity (V), where…
Q: if you expect the inflation rate to be 15 percent next year and a one-year bond has a yied to…
A: Inflation rate = 15 Yield to maturity = 7 %
Q: In a particular economy the real money demand function is Real Interest Rate, r (%) 0 45 M P 3,000 +…
A: Money demand depicts the inverse relationship between two variables namely interest rate and…
Q: Discuss the impact of monetary and fiscal policy in each of these special cases: 4. 1.1. If…
A: ANS 4.1.1. The relationship between the rate of interest & the income level that arises from the…
Q: Desired consumption is Cd = 100 + 0.8Y - 500r - 0.5G, and desired investment is Įd = 100 - 500r.…
A: Given, Cd = 100+0.8Y-500r-0.5G Id = 100-500r M/P = Y-2000i πe = 0.05 G = 200 ȳ = 1000 M = 2100
Q: Which of the following is true? All else equal, if government spending and tax revenue INCREASE by…
A: Correct : All else equal, if government spending and tax revenue INCREASE by the same amount in a…
Q: Suppose a country has a money demand function (M/P)d= kY, where k is a constant parameter. The money…
A: The money demand function reflects the relationship between the nominal money supply (M), price…
Q: Advanced analysis) Assume the equation for the total demand for money is L= 0.4Y+80-4i, where L is…
A: Total demand for money is L= 0.4Y+80-4i Y=4450 i=5 Demand for money is directly related to the GDP…
Q: Higher potential output levels without any monetary policy intervention will lead to Multiple…
A: Given - Higher potential output levels without any monetary policy intervention.
Q: Suppose a country has a money demand function (M/P)d=kY, where k is a constant parameter. The money…
A: Inflation: It refers to the increase in the economy's prices and services. The more inflation in the…
Q: Suppose that the real money demand function is L(Y,r+πe)=0.3Y÷ (r+πe) Where Y is real output, r is…
A: Given information: Real money demand function is given as: L(Y,r+πe) = (0.01Y)/r+πe) Y-1500, r=0.5…
Q: Suppose we start with a general equilibrium, and the economy experience an improvement in payment…
A: Considering the situation of general equilibrium, Improvement in payment technology shows that there…
Q: d) Suppose the money demand function was of the following form: M^d / P = Y η What must the central…
A: Central bank reduces the interest rate to increase the money supply into an economy by using various…
Q: Discuss briefly the liquidity preference theory (LFT) and differentiate it from the loanable funds…
A: The amount that is being charged to a borrower on any form of debt or amount given by the lender is…
Q: 1. IS-LM-AD Suppose the economy of Canada is governed by the following consumption function,…
A: With the given data:- [a] Deriving IS curve from goods market:- Y = C + I + G Y = 300…
Q: When real interest rates fall, the opportunity cost of current spending ________ and the consumption…
A: A real interest rate is an interest rate that has been adjusted to remove the effects of inflation.…
Q: Assume that the consumption function is giv Assume that the consumption function is given by C =…
A: Since you have asked a question with multiple subparts we will here only solve first three sub…
Q: The _____________ is inversely related to the real interest rate. Multiple Choice: LM curve quantity…
A: Real interest rate is the rate savers earn on savings and investors pay on borrowing.
Q: Which of the following statements concerning the demand for money is false? The speculative demand…
A: The speculative motive for demand for money arises when investing the money in some asset or bond is…
Q: Consider the closed-economy model of the money market in which, the demand for real balances depends…
A: Given information Money demand function M/P=L(i,Y-T) M/D= real money demand i= interest rate Y-T=…
Assume that the demand for real money balance (M / P) is M / P = 0.8Y – 200i, where Y is
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 6 images
- Assume that the demand for real money balance (M/P) is M/P = 0.6Y-100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?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…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.
- In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule?In an economy, the money supply growth rate is 5.0%, the equilibrium real interest rate is 1.5%, the potential growth rate is 4.0%, the economic growth rate is 1.0%, the inflation rate is 3.0%, the unemployment rate is 4.5%, and the rate of increase in the circulation speed is -2%. In this case, in an economy that pursues an inflation target of 2.0%, what is the appropriate interest rate target based on Taylor's rule? (Omit the unit and answer with the first decimal place.)A standard "money demand" function used by macroeconomists has the form In(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 per year. 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 to by approximately %. (Round your response to the nearest integer)
- When nominal interest rates on financial assets are low, the opportunity cost of holding money is ________, so the quantity of money demanded by households and firms will be ________.Suppose the interest rate that banks in Techland charge one another for overnight loans is 5 percent, the long-term nominal interest rate is 4.5 percent, and the long-term expected inflation rate is 3 percent. What is the long-term expected real interest rate? How will the long-term expected real interest rate be affected if the central bank of Techland starts purchasing government bonds from banks?Suppose Singsville National Bank lends money to Ari at 1.5% interest. If inflation is 1%, calculate the real interest rate that Ari pays for the loan.Did Singsville National Bank lose or earn money in this exchange?
- C= 100 + 0.5 - (Y – Ť) I = 200 – 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are Ğ = 300, T= 200. The LM (money market equilibrium) curve is Y 10i where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 2000 units of money, and expected inflation is a = 0.02. Assume that the long-run equilibrium level of output is Y = 1000. Short-run equilibrium output is initially at the same level (Y = 1000). Suddenly, news of a new world-beating super-vaccine raises the investment function to I = 250 – 1000 - r Question 4 The CB wants to use open market operations to reduce M. Explain what it would have to do, and what would happen to the monetary base B. What would happen to the nominal interest rate i in the short-run? How is it related to bond prices? Question 5 After everyone is vaccinated, suppose that consumers suddenly withdraw all their checking deposits and start preferring cash…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 decreaseConsider an economy with constant nominal money supply M=100, constant real output Y = 100, and constant real interest rate r = 0.1. Suppose that the income elasticity of money demand is 0.5 and the interest rate elasticity of money demand is -0.1. Also assume that expected inflation is zero and does not change (ne = 0). This implies that the nominal interest rate is equal to the real interest rate. By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 120, money supply doubles but r remains at 0.1? O A. 90% О В. 50% О С. 3% O D. 0.9%