ECO 2020 INCLUSIVE ACCESS
21st Edition
ISBN: 9781260564617
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 36, Problem 9RQ
To determine
True or false.
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What do you expect will happen to the price level and real GDP in the short run when the bank of
Canada buys domestic government bonds given a positively sloped SRAS curve?
Select one:
O a. Both the price level and real GDP will
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increase.
O b. Both the price level and real GDP will
decrease.
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O c. The price level will increase while real GDP
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will decrease.
O d. The price level will decrease while real GDP
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O e. There is no change either to the price level or
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4-2 Module Four Homework
LO
5
166
PIE
To use money growth as a short-term monetary policy instrument, a central bank must belleve that
Multiple Choice
Saved
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
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 correct
Chapter 36 Solutions
ECO 2020 INCLUSIVE ACCESS
Ch. 36.1 - Prob. 1QQCh. 36.1 - Prob. 2QQCh. 36.1 - Prob. 3QQCh. 36.1 - Prob. 4QQCh. 36.4 - Prob. 1QQCh. 36.4 - Prob. 2QQCh. 36.4 - Prob. 3QQCh. 36.4 - Prob. 4QQCh. 36.5 - Prob. 1QQCh. 36.5 - Prob. 2QQ
Ch. 36.5 - Prob. 3QQCh. 36.5 - Prob. 4QQCh. 36 - Prob. 1DQCh. 36 - Prob. 2DQCh. 36 - Prob. 3DQCh. 36 - Prob. 4DQCh. 36 - Prob. 5DQCh. 36 - Prob. 6DQCh. 36 - Prob. 7DQCh. 36 - Prob. 8DQCh. 36 - Prob. 1RQCh. 36 - Prob. 2RQCh. 36 - Prob. 3RQCh. 36 - Prob. 4RQCh. 36 - Prob. 5RQCh. 36 - Prob. 6RQCh. 36 - Prob. 7RQCh. 36 - Prob. 8RQCh. 36 - Prob. 9RQCh. 36 - Prob. 1PCh. 36 - Prob. 2PCh. 36 - Prob. 3PCh. 36 - Prob. 4PCh. 36 - Prob. 5PCh. 36 - Prob. 6PCh. 36 - Prob. 7P
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- The income elasticity of money demand is ny = 0.7 and the interest rate elasticity of money demand is nj = -0.02. Suppose that the central bank increases the money supply by 5%, real income increases by 2% and inflation is 3%. What is the percentage increase in the nominal interest rate? O -0.3 (or -30%) O 0.3 (or 30%) O-0.1 (or -10%) O 0.1 (or 10%)arrow_forward1. 2. 3. Which expression describes the flattest money demand schedule? O a. 1=450-2(3) O b. 1=450-9(3) O c. L-5(200)-5(10) O d. L=5(200)-8(10) Which of the following will lead to an increase in the equilibrium interest rate in the money market? O a. Increase in general price level O b. An increase in income O c. Decrease in general price level d. The Central Bank increases money supply Which of the following statements describes the LM curve? O a. It has a negative slope. O b. It describes the relationship between supply and demand of goods. O c. It represents the combination of interest rate and income where the goods market is in equilibrium. O d. None of the abovearrow_forwardSuppose the U.S. economy is in equilibrium at a potential output of $10 trillion so that unemployment is at the natural rate. At the beginning of the year, the Federal Reserve announces that its monetary policy will aim to maintain output at potential output and sustain the current price level throughout the year. Firms and workers negotiate annual wage and resource price agreements based on the belief that the Fed is committed to price stability. The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve (SRAS) at an expected price level of 120. Now suppose that several months later, the Fed abandons its stated goal of price stability and shifts toward an expansionary monetary policy. On the following graph, show the short-run effect of this policy by shifting the appropriate curve or curves. Note: Select and drag one, both, or all of the curves to the desired position. Curves will snap into position,…arrow_forward
- INTEREST RATE 12 10 co + 2 O 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect.arrow_forward2. 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 ratesarrow_forwardDiscuss the following statements: a. The Keynesian multiplier is higher the higher is the degree of openness of the economy'. b. 'There is no easy policy answer when it comes to dealing with a negative supply shock'. Consider the following economy. The production function is F(K,L) = K0.3 Lº.7. The saving rate and the depreciation rate are respectively: s = 0.10 and 8 = 0.07. Population growth is 1%, i.e. n = 0.01. c. Derive the capital accumulation equation for this economy. d. Find the steady state value of the capital stock per capita. e. Suppose that the initial capital stock per capita is: k = 1.5. Discuss the process of convergence of the economy to the steady state using the appropriate diagram. f. Calculate the optimal saving rate of the economy and discuss whether the economy at the steady state over or under-accumulates capital.arrow_forward
- Using the Taylor Rule, if the inflation rate is 2.5%, Equilibrium Real Federal Fund Rate is 2% and output gap is zero, the real neutral federal fund rate is.. . O 4.75% O 2.25 % O 2.5% O 4.5%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_forwardIf 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 1.25arrow_forward
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