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- Suppose the growth rate of nominal GDP is 10% per year and the growth rate of real GDP is 2% peryear. According to the quantity theory of money, the money growth rate is most likely to be: 1.2% per year 2.12% per year 3.10% per year 4.8% per yearThe money supply of a country has been growing for many years causing expected inflation of 8% per year. The economy’s current GDP growth rate is 1%. The Central Bank’s full employment target GDP growth rate is 5%. The “real” interest rate, r, is 4%. Following a policy that targets only inflation, with speed of adjustments ay =0 and aπ = 0.5, where 6% is the new target inflation rate what should their target nominal interest rate be set at?Suppose the statistical office of a country does a poorjob in measuring inflation and reports an annualizedinflation rate of 4% for a few months, while the trueinflation rate has been 2.5%. What will happen to thecentral bank’s credibility if it is engaged in inflation targeting and its target is around 2%?
- Money demand equation for a country is given by the equation (MP)d=e−λ(πe+r)+αY where πe is expected inflation, r is the real interest rate and Y is income. We assume that expected inflation equals actual inflation and also r and Y are considered as constant. Find the optimal level of inflation (π∗)which maximizes seigniorage revenue (S) ?In the quantity equation, MV = PY, if velocity is constant, real GDP is growing at 2% per year, and the money supply is increasing at 7% per year, what will inflation be in the long run? Select one: a. 4% per year b. 6% per year c. 7% per year d. 5% per yearshow why the self correction process involves only temporay periods of inflation or deflation
- If the current rate of inflation using PCE is: 1.67, the current potential real GDP is 19594.2, and the most recent real GDP is 19087.6, what should the federal funds be using taylor rule?Suppose the money supply M has been growing at 19% per year and nominal GDP, PY, has been growing at 77% per year. The data are as follows (in billions of dollars). M PY V 2021 400 4000 2022 476 7080 2023 566.44 12,532 Calculate the velocity V in each year. (Fill in the table above, rounding to one decimal place.) Velocity is growing at an approximate rate of % per year. (Round to the nearest whole number.)If the money supply (M) is $300, the real GDP (Q) is 200, the velocity of money (V) is 6, the interest rates is 5% and the inflation rate is 3%, then calculate nominal GDP.
- The Bank of Canada maintains an operating band for the overnight interest rate of 50 percent of the bank rate. 50 percent of the inflation rate. 50 basis points below the bank rate. 50 basis points below the inflation rate.Suppose that the money supply will grow by 2% in Japan over the next five years. Velocity is constant. Real income is expected to grow at 3%. The inflation rate will be: 5% 3% 1% -1% none of the aboveThe risk-free rate is 4.8%, and expected inflation is 3.2%. If inflation expectation such that future expected inflation rises to 4.5%, what will the new risk-free rate be
