Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
20th Edition
ISBN: 9780078021756
Author: McConnell, Campbell R.; Brue, Stanley L.; Flynn Dr., Sean Masaki
Publisher: McGraw-Hill Education
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Question
Chapter 32, Problem 5DQ
To determine
The backing of money supply and the value of money.
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4-2 Module Four Homework
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5
166
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To use money growth as a short-term monetary policy instrument, a central bank must belleve that
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there is a stable link between the monetary base and the rate of inflation
only money matters
there is an unpredictable relationship between money aggregates and inflation
the deposit expansion multiplier is volatile and unpredictable
2. Suppose that the money market can be depicted in the graph below.
Interest rate
(M/P)²
(M³/P)⁰ (M³/P)1
H
A
K
O
B
C
O
E
L3
L1
L2
Quantity of Money
LI is the original demand for money by the public and (M/P) is the real money supply. Assume tha
the price level does not change. The original equilibrium is at point O.
Suppose that the government lowered income taxes so that consumers had more disposable income.
Briefly describe how you reached that conclusion.
Identify the new equilibrium point and what happens to interest rates
If the money supply is $60 billion, the velocity of money is 7, and real GDP is $240 billion, then the
price level equals:
1.75
O 0.57
1.50.
O 4
O 1.25
Chapter 32 Solutions
Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
Ch. 32 - Prob. 1DQCh. 32 - Prob. 2DQCh. 32 - Prob. 3DQCh. 32 - Prob. 4DQCh. 32 - Prob. 5DQCh. 32 - Prob. 6DQCh. 32 - Prob. 7DQCh. 32 - Prob. 8DQCh. 32 - Prob. 9DQCh. 32 - Prob. 10DQ
Ch. 32 - Prob. 11DQCh. 32 - Prob. 12DQCh. 32 - Prob. 13DQCh. 32 - Prob. 14DQCh. 32 - The three functions of money are: LO34.1 a....Ch. 32 - Prob. 2RQCh. 32 - Prob. 3RQCh. 32 - Prob. 4RQCh. 32 - Prob. 5RQCh. 32 - Prob. 6RQCh. 32 - Prob. 7RQCh. 32 - Prob. 8RQCh. 32 - Prob. 9RQCh. 32 - Prob. 1PCh. 32 - Prob. 2PCh. 32 - Prob. 3PCh. 32 - Prob. 4PCh. 32 - Prob. 5P
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- In which of the following situations would you prefer to be the lender? 1) Expected inflation rate is 7 percent and the interest rate is 9 percent 2) The interest rate is 25 percent and the expected inflation rate is 50 percent. 3) The interest rate is 13 percent and the expected inflation rate is 15 percent. O 4) The interest rate is 4 percent and the expected inflation rate is 3 percent. O 5) Expected inflation rate is 1 percent and the interest rate is 4 percent O6) None of the answers are correctarrow_forward1. Suppose that the money market can be depicted in the graph below Interest rate (M/P)² (M³/P)⁰ (M³/P)¹ G K A O B C O E L3 L1 12 Quantity of Money LI is the original demand for money by the public and (M/P) is the real money supply. Assume that the price level does not change. The original equilibrium is at point O. Suppose that the Federal Reserve board lowered the reserve requirement for commercial banks. Briefly describe how you reached that conclusion. ( Identify the new equilibrium point and explain what happens to interest rates.arrow_forwardPeople in the economy have 350 billion CZK on current accounts, they have 250 billion CZK on saving accounts, people hold 200 billion CZK in cash, commercial banks hold 100 billion CZK in cash and the central bank holds 50 billion CZK in cash. What is the money stock M1? O 550 billion O 700 billion O 750 billion O 600 billionarrow_forward
- 2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…arrow_forwardThe equation of exchange is given by MXV = PxQ, where M is the money supply, V is the velocity of money, P is the economy's price level, and Q is Real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 2 12 REAL GDP (Trillions of dollars) AD O AS 2 ?arrow_forwardo 19. Which of these statements is true according to the Keynesian (post-Keynesian) view? a. Increases in monetary base cause an increase of money supply 20 b. Increase of money supply cause inflation c. Demands of firms for credit creates money supply d. Central banks can directly control money supply can couNOMIC OF prough anti- lated according to Keynes?arrow_forward
- esc > Moving to another question will save this response. Velocity of money depends on all of the following, except: Customs O Stability of money as store of value Inflation Rate Wage Rate Question 18 bike 2.jpg 101°F Sunny f1 ? 1 a 2 W # bike.jpg 3 10 $ 4 #bike 2 f5 % R LO 5 Earrow_forwardAssume, in the 3rd quarter of 2018 in the U.S., the velocity of money was 3.08 and the M2 money supply was $1,050 million. The average prices in the economy was $1.44. Based on this, what was the real GDP of the U.S. in the 3rd quarter of 2018. O a. $2,750 million O b.$1,250 millon Oc. $2,000 million O d. 52.250 millionarrow_forwardCash: $129.25 billion Checking deposits: $207.4 billion Saving accounts: $273.5 billion Small denomination time deposits: $27.3 billion Bank reserves held at the Fed: $43.0 billion Suppose that in a certain economy, the above are the only forms of money. How big is the monetary base (MB)? O a. $508.20 billion O b. $364.15 billion O c. $610.15 billion O d. $316.50 billion O e. $172.25 billion O f. $653.15 billionarrow_forward
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