Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 1PA
Subpart (a):
To determine
Money supply, price level, and velocity.
Subpart (b):
To determine
Money supply, price level, and velocity.
Subpart (c):
To determine
Money supply, price level, and velocity.
Subpart (d):
To determine
Money supply, price level, and velocity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity of money?b. Suppose that velocity is constant and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant.c. What money supply should the Fed set next year if it wants to keep the price level stable?d. What mone
Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 trillion.
The price level is
, and the velocity of money is
.
Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will , and nominal GDP will .
True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year.
True
False
If the Fed wants an inflation rate of 9 percent instead, it should the money supply by
. (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
In the country of Sparta, mnoney supply equals 13 million drams, real GDP is 65 million drams, the price level is 1.2, and the velocity of
money is 6.
a. What is the value of its nominal GDP?
Nominal GDP: $
million drams.
b. If, in the next year, V remains constant and real GDP increases to 78 million drams, what must happen to money supply in order to
keep prices stable? Round your answer below to 1 decimal place.
Money supply must (Click to select) v to $
million drams.
Chapter 12 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
Knowledge Booster
Similar questions
- Suppose that this year’s money supply is £500 billion, nominal GDP is £10 trillion, and real GDP is £5 trillion. 1. Suppose that velocity is constant, and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? 2. What money supply should the Fed set next year if it wants to keep the price level stable? 3. What money supply should the Fed set next year if it wants inflation of 10 percent?arrow_forwardMoney supply versus interest rate targets. assume that the economy's real GDP is growing. a. What will happen to money demand over time? b. If the Fed leaves the money supply unchanged, what will happen to the interest rate over time? c. If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time? d. What would be the effect of the policy described in part (c) on the economy's stability over the business cycle?arrow_forwardSuppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. The price level is 2, and the velocity of money is 20 Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. If the Fed keeps the money supply constant, the price level will fall by 4% and nominal GDP will stay the same True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 4% next year. True False If the Fed wants an inflation rate of 11 percent instead, it should be rewritten as the following percentage change formula: the money supply by %. (Hint: The quantity equation can (Percentage Change in M) + (Percentage Change in V) = (Percentage Change in P) + (Percentage Change in Y).)arrow_forward
- Suppose that this year's money supply is $7.5 trillion, nominal GDP is $22.5 trillion, and real GDP is $15 trillion. 1. Calculate velocity of money and the price level. 2. Suppose that velocity of money is constant and the economy's output remains unchanged next year. What will happen to the price level next year if the central bank raises the money supply by 2 percent?arrow_forwardSuppose the economy is in long-run equilibrium with GDP approaching $23T and the unemployment rate is approaching 4%. Now, let's say that the Fed has decided to decrease the money supply by 6%! The Fed proposes this move by raising the Prime Rate from the current 3.25 to 4.00 and to sell a new trunk or class of 30-year Treasury Bonds. This was not expected! What might be the short and long run effects on the economy as a whole if this were to take place? What happens to the inflation rate? What happens with unemployment? Like I said, this was actually expected that the Fed might take some sort of constriction action to stave off reduce inflation and to strengthen the money supply. However, President Biden, Congress and the Treasury Department had hoped for no contraction of the money supply until 2023.arrow_forwardMoney Supply Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? 1. The government increases spending to increase aggregate demand. 2. The government increases taxes to curb aggregate demand. 3. Nominal wages, prices, and perceptions adjust upward to this new price level. 4. Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. 1. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run…arrow_forward
- Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion and real GDP is $5 trillion. a. What is the price level? b. What is the velocity of money?arrow_forwardSuppose this year’s money supply is €100 billion, nominal GDP is €2 trillion and real GDP is €1 trillion.a. What is the price level? What is the velocity of money?b. Suppose velocity is constant and the economy’s output of goods and services rises by 5% each year. What will happen to nominal GDP and the price level next year if the Central Bank keeps the money supply constant.c. What money supply should the central bank set next year if it wants to keep the price level stable?d. What money supply should the Central Bank set next year if it wants inflation of 10%?arrow_forwardWhat happen to the money market equilibrium when the Fed raises its interest rate target to 6 percent a year following the increase in real GDP? The interest rate _______ and the equilibrium quantity of money _______. A. remains at 5 percent; increases B. rises to between 5 and 6 percent; decreases C. rises from 5 to 6 percent; decreases D. rises from 5 to 6 percent; might increase, decrease, or not changearrow_forward
- What is the effect of a rise in the U.S. price level on the buying power of money? The buying power of money _______. A. increases and aggregate demand increases B. increases and the quantity of real GDP demanded increases C. decreases and the quantity of real GDP demanded decreases D. decreases and aggregate demand decreasesarrow_forward1. The country of Florlandia is the world’s largest producer of plants and flowers. In 2021, the nominal output was valued at $300 billion, with the quantity of money circulating in the economy at $60 billion. Calculate the economy’s velocity for 2021 and explain what velocity tells us about an economy. 2. The Washington Post has reported that “The Fed’s broadest measure of the money supply, is more than $21.6 trillion today, up from $15.5 trillion in February 2020.” Using only this information, translate this information into a diagram and briefly explain the impact on the US dollararrow_forwardThe Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates." Explain the harmony among these goals in the long run. In the long run, ________. A. increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates B. low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment C. price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate D. price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowlyarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning