$300, G-$200, NX -$100, and that the money supply is equal to $300. Based upon these assumptions, ocity is equal to mponent of spending. If consumption and velocity both rise beyond their initial levels, then it follows that another necessarily fall. a. 5; must b. 5; does not c 3; must d. 3; does not
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- Calculate what happens to nominal GDP if velocityremains constant at 4 and the money supply increasesfrom $250 billion to $375 billionSuppose the money demand function is = 1000 + 0.2Y - 1000 (r + πe). Required (a.) Calculate velocity if Y = 2000, r = 0.06, and πe = 0.04. (b.) If the money supply (Ms) is 2600, what is the price level? (c.) Now suppose the real interest rate rises to 0.11, but Y and Ms are unchanged. What happens to velocity and the price level? (d.) For part (c.), if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year, with Y remaining at 2000, what would the inflation rate be?Suppose the money demand function is ▪ Md/P = 1000+ 0.2Y - 1000 (r + πе). (a) Calculate velocity if Y = 2000, r = .06, and Te = .04. (b) If the money supply (Ms) is 2600, what is the price level? "(c) Now suppose the real interest rate rises to 0.11, but and Ms are unchanged. What happens to velocity, and the price level? So if the hominal interest rate were to rise from 0.10 to 0.15 over the course of a year, with Y remaining at 2000, what would the inflation rate be?
- . How would you expect velocity to typically behave overthe course of the business cycle?E4 Assume the real money demand of an economy is:(Md/P) = 2×Yb(r + πe)-awhere 0 < b < 1 and 0 < a < 1.a) Use the real money demand above to determine the velocity of money.b) Does the quantity theory of money hold in this economy? Explain.c) Show with calculus how the velocity of money reacts to a change in output and a changein the nominal interest rate.d) Find the income and the nominal interest rate elasticities of money demand.Suppose now that economists expect the velocity ofmoney to increase by 50% as a result of the monetarystimulus. What will be the total increase in nominalGDP?
- 1. Which of the following is concerned with changing the aggregate demand of thenation?A) External balanceB) Internal balanceC) Expenditure-changing policiesD) Expenditure-switching policiesAnswer: 2. Which of the following is an example of an expansionary monetary policy?A) Increase in TaxesB) Increase in the nation's money supplyC)Increased government expendituresD) Reduction in taxesAnswer:3 Money demand function · Suppose a country has a money demand function: M. 0.5Y i a) Is velocity a constant value? If not, please derive the expression for velocity of money. b) Now assume the interest rate is 2.5%, calculate the velocity.Which of the following statements about the income velocity of money (V) is NOT correct? a. It is an indicator of the demand for money as an asset (store of wealth). b. It is equal to the ratio of GDP to some measure of the stock of money such as M2. c. It is influenced by the public expectations regarding future rates of inflation. d. none of the above.
- a) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. The real risk-free rate of return on theseT-bills was: b) When individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties, they are most likely in the phase of the investment life cycle. gifting B. consolidation C. accumulation D. spending c) Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000. The current market price of the bond is $950.25. If the YTM of the bond dropped by 1%, what would happen to the bond price?QUESTION 25 Refer to the information provided in Figure 32.3 below to answer the question(s) that follow. AS (long run) Price level Yo Output Figure 32.3 B AS₂ AS₁ moves the economy to Point C. O moves the economy to Point D AD₂ AD₁ 4 Refer to Figure 32.3. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated increase in money suppl Oleaves the economy at Point A. O moves the economy to Point B.QUESTION 8 expenditures, income 120 110 100 28888888 QUESTION 9 90 80 70 60 50 40 30 20 10 0 ▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬ 08. Which of the following could have caused a shift of the Aggregate Expenditures curve from AE1 to AE2? O (a) an increase in the price level (b) an increase in the rate of interest O (c) an improvement in consumer confidence O (d) a contractionary monetary policy 0 10 20 30 40 50 60 70 80 90 100 110 120 income: Q 2006 NATIONAL INCOME DATA (billions of dollars) Personal consumption expenditures Gross private domestic investment Exports Imports 9277.2 2701.0 1470.2 2256.6 Government consumption expenditures and gross investment Capital consumption allowances (depreciation) 953.3 Survey of Current Business, National Income and Product Accounts, Tables 1.1.5 & 7.13 09. The Net Domestic Product is: O(a) 19282.1 O (b) 17025.5 O (c) 16072.2 (d) 13815.6 O(e) 12862.3 AE2 AE 1 2623.8