Use the Quantity Theory of Money equation to solve the following: If the velocity of circulation is constant, real GDP isgrowing at 4.5 percent a year, the real interest rate is 2.1 percent a year, and the nominal interest rate is 5.7 percent ayear. Inflation is as computed in the previous question. The growth of money is %.

Answered: Image /qna-images/answer/1bcdf2c9-ed61-42c4-ba41-f7b75b40db88.jpg

Answered: Use the Quantity Theory of Money…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Money velocity in the country of Ecoland is always stable. In 2019 (the base year), the money supply was $250 billion. In 2020, the money supply increased to $350 billion, the price level increased by 25 percent, and nominal GDP equaled $1400 billion. By how much did real GDP increase between 2019 and 2020? A) $15 billion B) $ 50 billion C) $12.5 billion D) $150 billion
Assume that money velocity is constant over time (v = v for all t). Suppose that the money supply grows at 5% (0.05) while real GDP grows at 3% (0.03). According to the quantitative theory of money, what should the inflation rate be? Round up to the second decimal point.
The following equation is a money demand function Md /P = f(y,I) a. Explain the equation b. Show that velocity of circulation of money is not constant c. What will happen to money demand if the nominal interest rate declines?
Explain what the theory of money is in words and mathematical expressions, and then relate this proposition to its growth rate version.
Explain the role of reverse repo rate in controlling the money supply in economy
What are the three basic functions of momey? Describe how rapid inflation can undermine money's ability to perform each of the three functions.
21.According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A)the Organization of Petroleum Exporting Countries (OPEC). B)the U.S. Treasury. C)the Federal Reserve. D)private citizens. 22.According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A)increasing. B)decreasing. C)7 percent. D)constant. 23.If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A)3 B)4 C)9 D)11 24.Percentage change in P is approximately equal to the percentage change in: A)M. B)M minus percentage change in Y. C)M minus percentage change in Y plus percentage change in velocity. D)M minus…
State whether the following statements are true, false, or uncertain and explain. -Over the past 30 years, country A experienced an average money growth rate of 5 percent and an average inflation rate of 4 percent. This pattern is inconsistent with the quantity theory of money (QTM) -Chase Bank removed the ATM machine located in the lobby of Susan’s building. The Baumol-Tobin model of money demand predicts that Susan’s demand for money will go up
Suppose the velocity of money is 10 transactions per year, the price level for 2015 is $6, and real GDP in 2015 is $4,000,000. If the central bank holds the money supply constant and output grows by 10%, what will nominal GDP be in 2016? Answer:
We would expect that the level of income that would equate total demand for and total supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate)
QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
Suppose the velocity of circulation (V) is constant. The annual growth rate of real GDP is 3%. The money supply grows by 5% per year. Suppose the nominal interest rate is 1%, how much is the real interest rate?

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS