Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 3PA
To determine
Zero inflation and rate of money growth.
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Students have asked these similar questions
It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we assume that velocity is constant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal
It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we
assume that velocity is contant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal
Use the concept of opportunity cost to explain why velocity is higher at higher interest rates?
Chapter 22 Solutions
Essentials of Economics (MindTap Course List)
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- This question uses approximate data from 2020. Over the year real GDP declined by about 3 percent, the inflation rate was about 1 percent, and the money supply increased by about 25 percent. What does this tell us about the velocity of money and the quantity equation (MV PY) over the year 2020. = Question 26 options: That velocity must have increased by a substantial amount. That velocity must have decreased by a substantial amount. That velocity was constant. That the quantity equation is not correct.arrow_forwardWhat did Friedman and Phelps argue about the effectiveness of monetary policies? As long as people’s inflation expectations were fixed, an increase in the money supply growth rate could not change output in the short or long run. If people’s inflation expectations were fixed, in the short run, a decrease in the money supply growth rate could raise output and unemployment. When the money supply growth rate changed, people would eventually revise their inflation expectations so that any change in unemployment created by an increase in the money supply growth rate would be temporary. When the money supply growth rate changes, people slowly adjust their inflation expectations; therefore, the unemployment rate changes only in the long run but not in the short run.arrow_forwardHow does money velocity contribute to the observation that in countries with high rates of inflation, the inflation rate exceeds the rate of money growth?arrow_forward
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- According to the data, output growth in the United States has averaged around 3%, inflation has averaged around 4% for the last 50 years, while money growth has averaged around 7%. What does this say about the growth rate of velocity? If money growth increased to round 10% for the next 50 years, what would you predict inflation to average over the next 50 years? Why?arrow_forwardDefine velocity of money and discuss the major determinants of velocity.arrow_forward1) Assume that velocity (how many times a dollar is used in a given period) stays the same, and that GDP does not change. If the money supply doubles, what will happen to the general price level in the economy according to the quantity equation? A) The inflation rate will double. B) The price level will fall by a half. C) The price level will double. D)The price level will not change either. 2) During the financial crises and recession of 2007-09, the Fed lowered the federal funds rate target to 0-0.25%. However, long-term interest rates, like mortgage rates, were still fairly high. One thing the Fed did to lower long-term rates was that the Fed : A) bought long-term bonds B) lowered the long-term interest rates by lowering the reverse repo rate C) lowered the long-term interest rates by lowering the discount rate D) sold long-term bondsarrow_forward
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