Suppose that the nominal interest rate is zero, that is, R=0. a. In this case, in terms of real income Y and the price level P, the real equilibrium quantity of credit card balances is
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- The supply of credit cards is given by q = 1400X, where X are real credit card balances, q isthe real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)and P = 100. Answer the following questions about this:(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (realoutput).(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.How much is the inflation rate as a result? Explain and justify your answer. (c) Further suppose that at the same time, real output, Y , increases by 10%. Now what isthe inflation rate? Does our quantity theory of money hold here? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Assume that at a Monetary Policy Committee meeting the South African Reserve Bank decides to increase the repo rate. what is the impact of a higher repo rate be on real production (Y) and pricesAssuming that at equilibrium real money supply (M$/P) is equal to real money demand (Md /P), which is assumed to be a function of real income (Y), nominal interest rate (R), and technology (A) as follows: MS Y =A- R P (a) Specify the assumptions needed to uphold the prediction of quantity theory of money claiming that the ratio of money to GDP is constant in the long run.e (b) Assuming that the growth rate of Y is 4%, the growth rate of R is 0, and the growth rate of A is -1%, draw a diagram to indicate the relation between growth rate of MS (on the X-axis) and inflation rate (on the Y-axis).
- 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.Suppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?Total demand for money (Dm) = Transactions demand (D;) + Asset demand for money (Da) (a) Assume that each dollar held for transactions purposes is spent on the average five times per year to buy final goods and services. If the nominal GDP is $10,000 billion ($10 trillion), what is the transaction demand (Di)? $ billion, because (b) The table below shows the asset demand at certain rates of interest. Using your answer to part (a) complete the table to show the total demand for money at various rates of interest. Interest rate Asset demand Total demand (in %) (billions), (Da) (billions), (Dm) 10 $ 30 $. 8 60 6 90 4 120 (c) If the money supply is $2,060 billion, what will be the equilibrium rate of interest? money supply (Sm) is equal to total demand (Dm). (d) If the money supply rises, the equilibrium rate of interest will (rise, fall, stay the same ). (e) If GDP rises, the equilibrium rate of interest will ( rise, fall, stay the same ). %, where
- The consumption function of the economy of Macro-land is given by ? = 200 + 0.75(? − ?)The investment function is given by ? = 200 − 25? . Government purchases and taxes are both 100. (a) Find the equation of the IS curve (b) The money demand function in Macro-land is given byMd= ? − 100? The nominal money supply M is 1,000 and the price level is 2. Find the equation of theLM curve (c) Find the interest rate and income for which the goods and services and money marketsare simultaneously in equilibrium. (d) Suppose the government purchases are raised from 100 to 150. What are the newequilibrium interest rate and income? (e) Suppose that the money supply is raised from 1,000 to 1,200. What are the newequilibrium interest rate and national income? (f) How will fiscal expansion in the country (Macro-land) affect national income,employment, interest rate, price level and real money balance under the Keynesianaggregate supply condition? NB: Kindly answer all questionsAccording to the Fischer equation, if the nominal interest rate is 8% and inflation is running at 4% then the real interest rate is? 12% 8% 4% 2%Suppose that the nominal interest rate is zero; that is, R = 0 . (a) What is the equilibrium quantity of credit card balances? (b) In what sense does the economy run more efficiently with R = 0 than with R > 0 ? (c) Explain your results in parts (a) and (b). Discuss the realism of these predictions.
- Which of the following is true about the expected real interest rate? A) It is equal to the nominal interest rate plus the expected inflation rate. B) It is equal to the ratio of the nominal interest rate to the inflation rate. It increases as the price level increases. D) It is always positive. E It is negative if the expected inflation rate exceeds the nominal interest rate.=0. An economy is described by the following equations: AD: SRAS: Okun's law: Y = 4000 + 2(M/P) Y = ybar + 100(P-P) (Y-ybar)/ybar =-2(u-ubar). Assume ybar 6000 and ubar=0.05. = A) Suppose that the nominal money supply has long been at M = 4000 and is expected by the public to remain constant forever. The equilibrium value of P is The equilibrium value of P is, The equilibrium value of Y is, The equilibrium value of u is The equilibrium value of x is, (2 points each) B) A totally unexpected increase in in the money supply occurs, raising it from 4000 to 5250. [Part B is for extra credit] The short run equilibrium value of P is The short run equilibrium value of Pe is_ The short run equilibrium value of Y is The short run equilibrium value of u is. The value of unanticipated inflation, which is defined as (P-P)/P, is, The value of the slope of the short-run Phillips curve is (2 points each)Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2. (a) What is the equilibrium interest rate?(b) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?