EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Question
Chapter 32, Problem 2DQ
To determine
The impact of velocity.
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How are M1 and M2 equations related to reserve market (interbank)? Let’s say, central bank applies “passive policy”
thru “rule”. How does this situation affect this relationship?
Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?(A) M1 Increases, M2 decreases(B) M1 Increases, M2 no change(C) M1 Decreases, M2 no change(D) M1 no change, M2 decreases(E) M1 no change, M2 no change
Suppose the liquidity preference function is given by:
L(i.Y) =-1,000/
Calculate velocity for each period, using the money demand equation:
V=
LY)
along with the following table of values. (Round your responses to two decimal places)
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Y (in billions)
12,100
0.04
12,400
12,500
12,900
12,350
0.03
13,200
0.04
13,300
0.08
Interest rate
0.08
0.05
0.06
Velocity
5.17
5.06
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