QUESTION 21 A decrease in the money supply creates an excess supply of money that is eliminated by rising prices. supply of money that is eliminated by falling prices. demand for money that is eliminated by falling prices demand for money that is eliminated by rising prices a. b. C. d. a
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- Q) Suppose the money supply grew at an average annual rate of 20%, velocity was constant, the nominal interest rate averaged 16%, and output grew at an average annual rate of 8%. According to the Quantity Theory, a. inflation averaged 6% per year and the real rate of return was 2%. b. inflation averaged 12% per year and the real rate of return was 4%. c. inflation averaged 10% per year and the real rate of return was 8%. d. inflation averaged 20% per year and the real rate of return was 6%.Suppose that this year's money supply is $1,200 billion, nominal GDP is $6,000 billion and real GDP is $5,000 billion. (This question concerns the Equation of Exchange in the Classical Quantity Theory of Money). a) What is the price level (expressed as a percentage-i.e., as a price index)? b) What is the velocity of money? c) Suppose that velocity is constant and the economy's output of goods and services rises by 6 percent each year. If the Fed keeps the money supply constant, what will nominal GDP be next year? d) Under the conditions in c) what will happen to the price level next year? e) What money supply should the Fed set next year if it wants to keep the price level stable? 1) What money supply should the Fed set next year if it wants the inflation rate to be 8 percent?QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
- 48)According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 3%, and the velocity of money is growing at 2%, then the inflation rate will be?11. Since 1990, money supply in the Japanese economy has doubled. Over the same period,nominal GDP in Japan has stayed almost constant. According to the Quantity Theory of Money,this suggests thata) the level of real GDP must have decreased.b) the level of real GDP must have increased.c) the velocity of money must have decreased.d) none of the above 13. According to the trilemma, which of the following is a potential cost of adopting a flexibleexchange rate regime?a) A country may have to restrict the size of capital flows.b) A country may su↵er from a volatile exchange rate.c) A country loses the ability to conduct independent monetary policy.d) None of the above. 14. In an open economy, if the level of net exports rises, it must be the case thata) there is an increase in saving.b) there is an increase in investment.c) the value of saving less investment must fall.d) none of the aboveDefine the velocity of the money
- 1. Nominal GDP =P*Y, where P is the price level and Y is aggregate output (income) . We know from class slides that the velocity of money links money supply and nominal GDP. Given nominal GDP in a year is $10 trillion and the quantity of money (M1) is $2 trillion, what is the velocity? What is the meaning of this calculated velocity? 2. Suppose that real money demand is represented by the equation M“/P= 0.25×Y. Calculate the velocity of money. 3. Consider a five year $1000 semiannual coupon bond with a 5% coupon rate. If the bond is current trading for a price of $957.35, what is the bond's yield to maturity? If the bond's yield to maturity increase a little bit, what will the bond's price be? 4. Suppose a 7-year, $1,000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. Is this bond currently trading at a discount, at par, or at a premium? Explain. If the yield to maturity of the bond rises to 7%, what price will the bond trade for? 5.…SUBMISSION IS DUE ON WEDNESDAY, 4th AUGUEST 2021. EMAIL YOUR SUBMISSIONS TO: jwappiahkubi@ug.edu.gh The commodity market for a simple economy is in equilibrium and when Y = C + 1 + G. The money market is in equilibrium when the supply of money (M) equals Demand for money (Md). Demand for money composes of transaction- precautionary demand for money (Mt) and the speculative demand for money (Ms). Assume the economy is characterised by the following information. C = 4800 + 0.8Yd T = 100, | = 1900 - 75i, G = 4000, M = 5000, Mt = 0.3Yd Ms = 100 – 15i a) Derive an expression to show the IS function b) Derive the LM function c) What values of Income and Interest rate provides for both the goods market and money market equilibrium in this economy d) Sketch the IS and LM curves for this economy. e) Outline four factors that cause a shift in the IS curve. Page 1 of 1QUESTION 4Consider the model of money demand we saw in class. Let the elasticity of money demand with respect to real income be 0.8 and the elasticity of money demand with respect to the interest rate on non-monetary assets be -0.2. Imagine that real income goes up by 3%, the interest rate on non-monetary assets goes up by 1%, and the price level does not change. Then the nominal demand for money changes by________percent.Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "6". fyour answer is a negative number, type a dash in front of your answer, i.e, "-999.99.
- 7. As the number of transactions in the economy decreases: the supply of money increases. the supply of money decreases. the demand for money increases. the demand for money decreasesAccording to the quantity theory of money, what must the growth rate of the money supply be given the following information? The growth rate of real GDP is 1.0%. The growth rate of nominal GDP is 3.8%. The nominal interest rate is 7.1%. The real interest rate is 4.3%. The money supply (M2) is $10,612(in billions) According to the quantity theory of money, the growth rate of the money supply must be___%. (Round your answer to the nearest tenth.)Suppose that this year's money supply is $7.5 trillion, nominal GDP is $22.5 trillion, and real GDP is $15 trillion. 1. Calculate velocity of money and the price level. 2. Suppose that velocity of money is constant and the economy's output remains unchanged next year. What will happen to the price level next year if the central bank raises the money supply by 2 percent?