Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 14, Problem 14.5.4PA
To determine
Inflation rate.
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According to the data, output growth in the United States has averaged around 3%,
inflation has averaged around 4% for the last 50 years, while money growth has
averaged around 7%. What does this say about the growth rate of velocity? If money
growth increased to round 10% for the next 50 years, what would you predict
inflation to average over the next 50 years? Why?
Suppose you are put in charge of the central bank in an economy where potential GDP is
growing at 3% and inflation has been 5% a year for the past few years.
a) You find out that your predecessor had increased the money supply by 7% a year during this
time. What does that say about the rate of velocity growth in this economy?
b) You decide that 5% inflation is too high a rate, and that you need to take steps to reduce
inflation to 2% a year. Assuming that the growth rate of velocity is a constant, what is the
new rate of money growth you should implement in this economy?
c) Continuing with your answer from b), what is the new rate of money growth you should
implement in this economy to keep inflation at 2% a year if all else equal
i) The growth rate of potential output rises to 4%
ii) The growth rate of velocity falls to 0%
d) How would your answer to b) would change if velocity growth was not constant, but instead
was a random variable vt? You can answer this with algebra or words,…
If the money supply is growing at a rate of 6 percent per year, real GDP (real output) is growing at a rate of 2 percent
per year, and velocity is constant, what will the inflation rate be?
%. (Enter your response as an integer value.)
Chapter 14 Solutions
Macroeconomics (7th Edition)
Ch. 14 - Prob. 14.1.1RQCh. 14 - Prob. 14.1.2RQCh. 14 - Prob. 14.1.3RQCh. 14 - Prob. 14.1.4RQCh. 14 - Prob. 14.1.5PACh. 14 - Prob. 14.1.6PACh. 14 - Prob. 14.1.7PACh. 14 - Prob. 14.1.8PACh. 14 - Prob. 14.1.9PACh. 14 - Prob. 14.2.1RQ
Ch. 14 - Prob. 14.2.2RQCh. 14 - Prob. 14.2.3PACh. 14 - Prob. 14.2.4PACh. 14 - Prob. 14.2.5PACh. 14 - Prob. 14.2.6PACh. 14 - Prob. 14.2.7PACh. 14 - Prob. 14.2.8PACh. 14 - Prob. 14.2.9PACh. 14 - Prob. 14.2.10PACh. 14 - Prob. 14.3.1RQCh. 14 - Prob. 14.3.2RQCh. 14 - Prob. 14.3.3RQCh. 14 - Prob. 14.3.4RQCh. 14 - Prob. 14.3.5PACh. 14 - Prob. 14.3.6PACh. 14 - Prob. 14.3.7PACh. 14 - Prob. 14.3.8PACh. 14 - Prob. 14.3.11PACh. 14 - Prob. 14.3.12PACh. 14 - Prob. 14.4.1RQCh. 14 - Prob. 14.4.2RQCh. 14 - Prob. 14.4.3RQCh. 14 - Prob. 14.4.4RQCh. 14 - Prob. 14.4.5PACh. 14 - Prob. 14.4.6PACh. 14 - Prob. 14.4.7PACh. 14 - Prob. 14.4.8PACh. 14 - Prob. 14.4.9PACh. 14 - Prob. 14.4.10PACh. 14 - Prob. 14.4.11PACh. 14 - Prob. 14.5.1RQCh. 14 - Prob. 14.5.2RQCh. 14 - Prob. 14.5.3RQCh. 14 - Prob. 14.5.4PACh. 14 - Prob. 14.5.5PACh. 14 - Prob. 14.5.6PACh. 14 - Prob. 14.5.7PACh. 14 - Prob. 14.5.8PACh. 14 - Prob. 14.5.9PACh. 14 - Prob. 14.5.10PACh. 14 - Prob. 14.1RDECh. 14 - Prob. 14.2RDECh. 14 - Prob. 14.3RDECh. 14 - Prob. 14.4RDECh. 14 - Prob. 14.5RDECh. 14 - Prob. 14.6RDE
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