recent discussion, attention was devoted to the role of the central bank, the quantity theory of money, and the relationship between the money supply and inflation. Please answer the following two questions: A. One of my favorite economists, Milton Friedman, is attributed with the quote: "Inflation is everywhere and always a monetary phenomenon." Explain its meaning, relate it to the quantity theory of money, and explain the quantity theory of money. B. Why might it be in the federal government's benefit to generate inflation?

Q: The Federal Reserve manages the amount of money in circulation by buying or selling U.S. Treasury…

A: The Federal Reserves is the central bank of the U.S. who is solely responsible for controlling the…

Q: The major contributions and implications of the quantity theory of money

A: For answering the question first we need to understand the quantity theory of money.

Q: complete the following sentence: There is a association between inflation and the growth rate of…

A: As per quantity theory, M x V = P x Y, where M: Money supply, V: Velocity, P: price level and Y:…

Q: If the velocity of money is assumed to be constant in the short run, the quantity theory of money…

A: The quantity equation is written as M × V = P × Y, where M is the money supply, V is the velocity of…

Q: You are the head of the central bank and you want to maintain 0 percent long-run inflation. You use…

A: The quantity theory of money shows the relationship between the price change and the money supply in…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected large…

A: Due to the open market purchase of securities, there will be an increase in the supply of money due…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected large…

A: When the U.S economy is in long-run equilibrium and the government spending falls unexpectedly, the…

Q: Suppose the money supply is €200, real output is 1,000 units, and the price per unit of output is…

A: here we calculate the velocity of money so we calculate the following by using the given information…

Q: Suppose the economy is initially at long run equilibrium, when there is an unexpected decrease in…

A: When an economy is in long-run equilibrium and the price of oil falls unexpectedly, the demand for…

Q: You are the head of the central bank and you want to maintain 2 percent long-run inflation. Velocity…

A: Quantity theory of money shows a relationship between country's money supply, inflation rate and…

Q: Does the Quantity Theory of Money adequately explain the cause of inflation?

A: The quantity theory of money assumes that the amount of money in a country has more influence on its…

Q: In contrast to the classical school of economists John Maynard Keynes has a different view of…

A: Money Demand: - The demand for money is the individual's desire to keep their assets in the form of…

Q: According to the quantity theory of money, if the long-run economic growth rate is 2.5%, by how much…

A: The quantity theory of money denotes the relationship between money supply, price level, velocity…

Q: The best description of a how a central bank like the Federal Reserve makes monetary policy these…

A: The central bank like Federal Reserve are the highest financial authority in a country to make…

Q: The following data come from FRED, a database maintained by the St Louis Fed. According to FRED,…

A: Real GDP is a macroeconomic statistic that adjusts for inflation and reflects the value of goods and…

Q: The monetarists believe that interest rates can move in the opposite direction from the conventional…

A: Answer-Need to find- The monetarists believe that interest rates can move in the opposite direction…

Q: What is inflation? How does the money supply effect the inflation? Explain these questions by using…

A: "Money supply is the total amount of money that is in circulation at any given point of time. It is…

Q: Suppose the economy has been at full employment for the past two years with a 4 percent inflation…

A: GDP is the value of final goods and services produced in the country within a given period of time

Q: Name three (3) policy tools that a Central bank can use to constrain the rate of inflation and…

A: The central bank of any country can decrease the money supply (contractionary monetary policy) to…

Q: If the central bank increases the money supply, then in the short run prices   rise and unemployment…

A: The Federal Reserve is the central bank that is the sole owner and regulator of the money supply in…

Q: Which one of these policies should the Fed engage in if unemployment is very high and inflation is…

A: Answer - Need to find- Which one of these policies should the Fed engage in if unemployment is very…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected large…

A: When the U.S economy is in long-run equilibrium and the government spending falls unexpectedly, the…

Q: The Quantity Theory of Money (QTM) states that ______. Note: the blank represents an entire phrase,…

A: Quantity Theory of Money is an economic theory stating the relationship between Money supply,…

Q: During the great depression, the US economy in 1932 experienced an inflation rate of -10.3%. The GDP…

A: Monetary policy is an important policy prescription to keep the stability of the economy. During…

Q: Draw a diagram to explain the link between money supply and inflation.

A: Inflation is caused by growing the cash flow more than economic production grows and create price…

Q: Consider the following hypothetical data for 2016 and 2017: 2016 2017 Money supply Velocity 1,500…

A: We have, MV = PY 2016: 1500 * 5 = P * 14,400                      P = 0.52

Q: On the following graph, shift the curve or drag the blue point along the curve, or do both, to show…

A: The economy is currently in long-run equilibrium A decrease in cash supply will shift the AD bend to…

Q: In the long run, the key determinant of inflation is a. the money supply. b. real GDP. c. the…

A: Introduction its answer is d) the growth rate of money supply. Because inflation has determined by…

Q: a) In 2020, the Labor Force Survey measured the economically active population is 40 million, number…

A: The working age population is the total population in the country aged between 15 to 64 years. These…

Q: Suppose the central bank subscribes to a monetarist approach to monetary policy. The central bank…

A: Disclaimer: Since you have posted a multi-part question, I am providing you with the answer to the…

Q: QUESTION: Based on the debate above, discuss on the conduct of Monetary Policy whether it should be…

A: Monetary policy refers to the regulation of the money supply by the central bank to bring about…

Q: What do monetarists predict will happen in the short run and in the long run as a result of each of…

A: The term velocity of money means the amount of circulation of a unit of money within an economy. It…

Q: The quantity equation of money can be written as: Money Supply (M) x Velocity (V) GDP Deflator (P) x…

A: Quantity theory of money is an equation that shows relationship between money supply, velocity,…

Q: Suppose the U.S. economy is initially at long run equilibrium, when there is an unexpected economic…

A: Due to the open market purchase of securities, there will be an increase in the supply of money due…

Q: Suppose the economy is initially at long run equilibrium, when there is an unexpected increase in…

A: When the economy is in long-run equilibrium and there is an unanticipated increase in the investment…

Q: (c) Briefly explain the quantity theory of money and how it is related to inflation.

A: Money is an economic unit that serves as the economy's widely acknowledged medium of trade. Money…

Q: According to the quantity theory of money, (a)    Increases in the money supply will lead to…

A: Inflation is defined as the rise in the average price level of commodities and services in the…

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.