Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 4, Problem 7QAP
a)
To determine
Withdrawal of money each time and her holding for 4 days.
b)
To determine
The Average money holding.
c)
To determine
Withdrawal of money once every two days when ATM are in used.
d)
To determine
Average amount held by a person when ATM are used.
e)
To determine
Withdrawal of money each time with advent of credit card is to be calculated.
f)
To determine
Average amount held by a person with advent of credit card.
h)
To determine
Effect on money demand due to ATM and credit cards is to be determined.
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The following table gives the quantity of money demanded at various price levels (P), the money demand schedule.
In the following table, fill in the column labeled Value of Money.
Quantity of Money Demanded
(Billions of dollars)
Price Level (P) Value of Money (1/P)
0.80
1.25
1.00
1.00
1.33
0.75
2.00
0.50
2.0
2.5
4.0
8.0
Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less money
required to complete transactions, and the less money people will want to hold in the form of currency or demand deposits.
Assume that the Federal Reserve initially fixes the quantity of money supplied at $4 billion.
Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blue
connected points (circle symbol) to graph the money demand curve.
2.00
1.75
1.50
0.75
0.50
0.25
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VALUE OF MONEY
1.25
Money Demand
°
1
2
3
4
5
B
7
QUANTITY…
Homework Question 22: Hyperdeflation Can Be a Bit Cryptic to Understand
Bitcoin is an electronic currency, which means that instead of having physical notes and
coins, the currency only exists online. Bitcoins are unique in that there is no entity or individual
that can increase the supply of Bitcoins. Instead Bitcoins are created by a computer algorithm that
currently adds a fixed number of Bitcoins into circulation every hour, the algorithm is designed to
gradually reduce the number of Bitcoins being produced, eventually reaching a growth rate of zero
in 2040. You have been given the task of thinking about the potential for Bitcoin to become widely
Only a small group of online vendors initially accepted Bitcoin but more and more are accepting
it over time in other words the volume of goods and services that can be purchased with Bitcoin
has been rising rapidly.
a) Reformulate the Quantity Theory of Money to apply to Bitcoin, i.e define what M, P, V and
Y are in the context of…
According to your graph, the equilibrium value of money is
, therefore the equilibrium price level is
Now, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion.
In order to reduce the money supply, the Fed can use open market operations to
the public.
Use the purple line (diamond symbol) to plot the new money supply (MS2 ).
Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is
than the
quantity of money demanded at the initial equilibrium. This contraction in the money supply will
people's demand for goods and
services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will
and
the value of money will
Chapter 4 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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