ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Why Inflation is referred as monetary phenomena. explain using graphs
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- The economy of Macro Island is described by the quantity equation with constant velocity. All residents of Macro Island understand the quantity theory and use it to form their expectations of inflation. Real income grows at a steady 2 percent per year, and the nominal interest rate is 5 percent. In one year, people had expected the money supply to grow by 4 percent, but in fact it grew by only 3 percent. a. What was the inflation rate? (3% 4% 1% 2%) b. What was the expected inflation rate? (1% 4% 3% 2%) c. What was the ex ante real interest rate? (4% 2% 1% 3%) d. What was the ex post real interest rate? (2% 1% 4% 3%) e. Did the deviation of inflation from what was expected hurt creditors or debtors? ( Creditors Debtors)arrow_forwardWhat could be a real world example that explains the difference between creeping inflation, galloping inflation, and hyperinflationarrow_forwardQ. Explain why economists consider inflation at too high a level to be a bad thing.arrow_forward
- Explain TWO costs of inflation from an economist’s perspective.arrow_forwardThe government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. a) What happens to prices? b) What happens to nominal interest rate? c) Why might the government be doing this?arrow_forwardWhat is the inflation rate? Year Money supply GDP Assume that the velocity of money is constant. (Write your answer in percentage. If your answer is 0.0222, write 2.22.) 2015 1,200 12,000 2016 1,220 12,550arrow_forward
- How is the Inflation-free interest rate an estimate of the true earning power of money?arrow_forward1. What are the main reasons that the U.S. inflation surged last year? 2. What is the monetary policy the Fed (central bank of the U.S.) uses to control inflation? 3. How did the monetary policy cause the bankruptcy of Silicon Valley Bank?arrow_forwardWhy does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of goods?arrow_forward
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