Econ Macro (book Only)
6th Edition
ISBN: 9781337408745
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 9P
Sub- Part
A
To determine
the effect on the
B
To determine
the effect on the interest rate over time, when the economy’s real GDP is growing.
C
To determine
the effect on the interest rate over time, when the fed changes the money supply in order to match the money demanded.
D
To determine
the effect of the policy as discussed in part c on the stability of the economy over the business cycle.
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Question: Consider an economy where the velocity of money is constant, and the economy is at full employment. If the central bank decides to increase the money supply by 5% but at the same time, the government imposes new taxes that effectively remove 5% of the consumers' disposable income, what would be the likely short-term effect on the nominal Gross Domestic Product (GDP) and the general price level? A) Nominal GDP remains unchanged; the general price level increases. B) Nominal GDP increases; the general price level remains unchanged. C) Nominal GDP remains unchanged; the general price level decreases. D) Nominal GDP increases; the general price level increases. Please don't use chatgpt it is giving wrong answer. Please try do it with yourself.
INTEREST RATE (Percent)
3
6
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves
Assume the central bank in this economy (the Fed) fixes the quantity of money supplied.
Suppose the price level decreases from 90 to 75.
Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.
18
Money Supply
15
12
0
0
10
20
30
Money Demand
40
50
60
MONEY (Billions of dollars)
Money Demand
Money Supply
Ⓡ
Consider an economy with the following measures:
(a)
The nominal interest rate is 2%. The rate of growth of money supply is 5%. The velocity growth
is constant. What is the growth in nominal GDP?
) In the context of introduction of robots into manufacturing, what is the difference be-
(b)
tween the productivity effect and the reinstatement effect?
(c)
thinking about the effect of higher capital income taxes.
3) Briefly describe any two of the three elasticities that Diamond and Saez mention in
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