Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $45,000 and that the velocity of money of this country is 5. This implies that the money supply, in this country, is:
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- Let’s assume that the nominal Gross Domestic Product, GDP, of a hypothetical country is $36,000 and that the velocity of money of this country is 6. This implies that the money supply, in this country, is:Differentiate between monetary flow and real flowCASE STUDY 18-4 Effect of Monetary Policy in the United States and Other OECD Countries Table 18.3 shows the effect of a 4 percent increase in the money supply (expansionary monetary policy) in the United States or in other OECD countries on the gross national product (GNP), consumer price index (CPI), interest rate, currency value, and current account of the United States and other OECD countries. The OECD—the Organization for Economic Cooperation and Development—included all 24 of the world’s industrial countries at the time of the exercise. The simulation results were obtained by using the Multi-Country Model of the Federal Reserve Board. Although the effects of an increase in the money supply are felt over several years, the results reported in Table 18.3 show the effect in the second year after the money supply increased. Part A of the table shows that a 4 percent increase in the U.S. money supply results (through the multiplier process) in a 1.5 percent…
- Assume that the quantity theory of money and relative PPP both hold. Output growth is 3% in the U.S. and 2% in Mexico, while money supply growth is 7% in the U.S. Money demand is constant in both countries. What money supply growth rate should Mexico choose if it wishes to fix the value of its currency to the U.S. dollar?Three countries are in a currency union. The countries are identical in that each has the same equilibrium level of output of £50 billion consistent with the same real interest rate of 2%, but each country is currently experiencing a different level of inflation as shown in Table 1. If the central bank for the currency union sets its (nominal) base rate at 7%, which one of the countries is likely to see an increase in its aggregate demand? (Hint: you need to use the real interest rate equation given in Chapter 8, Section 2.2 and may wish to review Chapter 8, Section 2.4.) Table 1 Information about three countries Country A Country B Country C Equilibrium output £50 billion £50 billion £50 billion Equilibrium real 2% 2% 2% interest rate Inflation rate 2% 5% 9% Select one: O Country A O Country B O Country C MacBook 80 DIN F1 F2 F3 F4 F5 F6 F7 FE @ € £ # $ & * 2 3 4 7 8. Q W E R Y COUsing the equation of velocity of money, you need to give an example of a "transaction" and calculate the velocity of money.
- (b) Assume that a country’s nominal GDP was measured at $1500 billion in a year and the volume of money (i.e. M1) circulating in the economy the same year was $400 billion. Using the equation of exchange, determine the velocity of money during the year.Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.How do changes in interest rates impact consumer spending, business investment, and overall economic activity, and how does the central bank use interest rates as a tool of monetary policy? A) Changes in interest rates have no effect on economic activity. B) Lower interest rates typically encourage consumer borrowing and business investment, stimulating economic activity. The central bank uses interest rate adjustments as a tool to influence borrowing and spending. C) Higher interest rates boost economic activity by increasing consumer savings. D) Changes in interest rates only affect government spending.
- Suppose the Federal Reserve wants to fix the U.S. exchange rate with the yen at $0.008 per yen. If the equilibrium market exchange rate were significantly lower at $0.007 per yen, what would the Fed need to do to maintain the fixed rate of $0.008 per yen? What would be the effect of these actions on the money supply in the U.S.? Explain.Question 1. A country’s money supply equals 300 bln USD, nominal GDP equals 3000 bln USD, and real GDP – 1500 bln USD in 2018. Calculate the price level and the velocity of money. Assume output increases by 10% next year. Determine what money supply should the central bank of this country set next year in order to keep the prices stable. Discuss what can happen if the growth of a country's money supply is faster than the growth of its output. Use the quantity theory of money to support your statement.Examine THREE (3) factors that characterise the effective functioning of a developed money market.
