Question

3. Problems and Applications Q3 ch 30

It is sometimes suggested that the Federal Reserve should try
to achieve zero inflation. Assume that velocity is constant.

True or False: In order to achieve this zero-inflation goal,
the rate of money growth must equal velocity.

True

False

Answer #1

False.

**Explanation**: Following is the relationship
among money growth (**?M**), change in the velocity of
money (**?V**), change in prices
(**?P**), and a change in real GDP
(**?Y**):

**?M + ?V = ?P + ?Y**

So, if velocity is constant i.e. ?V = 0 and we want to achieve zero inflation i.e. ?P = 0, in that case, putting the values, we get:

?M + 0 = 0 + ?Y

or, ?M = ?Y

Therefore, in order to achieve zero inflation, the rate of money growth should be equal to the change in the real GDP.

1. Problems and Applications Q1
Suppose that this year's money supply is $400 billion, nominal
GDP is $12 trillion, and real GDP is $4 trillion.
The price level is
, and the velocity of money is
.
Suppose that velocity is constant and the economy's output of
goods and services rises by 3 percent each year. Use this
information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will
, and nominal...

1-) In the following question, you are asked to determine
whether the statements are true or false. Explain your reasoning to
get full credit:
c) Assume velocity is constant. Suppose Fed wants to follow a
zero-inflation policy. Then, the rate of money growth should be
kept equal to zero by the Fed.

Use the following information for the next 4 questions. You
should draw a graph that depicts the situation below and use your
picture to answer the questions. Assume that wages and prices are
sticky and that we start at a long-run equilibrium. Assume that at
this initial point, the growth rate of the money supply is 6%, the
growth rate of the velocity of money is 0% and inflation is 2%. Now
assume that people begin to fear losing their...

Question 3. The
following Table gives information the rate of growth of the money
supply and real income for the U.S and Europe over the next
year.
You should assume
that all other determinants of the demand for money are
constant.
Real income growth Money supply growth
U.S
0.05
0.10
Europe
0.02
0.04
Given this
information.
What is inflation in Europe?
What happens to the U.S exchange rate over the next year?
Suppose that the Federal Reserve wants...

1-) In the following question, you are asked to
determine whether the statements are true or false. Explain your
reasoning to get full credit:
c) Assume velocity is constant. Suppose Fed wants to
follow a zero-inflation policy. Then, the rate of money growth
should be kept equal to zero by the Fed.
d) Credit Cards are considered money because they are a
medium of exchange.
e) Gold is an example of fiat money.

1-) In the following question, you are asked to determine
whether the statements are true or false. Explain your reasoning to
get full credit:
a) Natural level of unemployment cannot be changed through
policy.
b) Assume velocity is constant. Suppose Fed keeps the money
supply constant as well. Then, when the real GDP grows by 10
percent, prices should decrease by 10 percent.
c) Assume velocity is constant. Suppose Fed wants to follow a
zero-inflation policy. Then, the rate of...

In the following question, you are asked to determine whether
the statements are true or false. Explain your reasoning to get
full credit:
a) Natural level of unemployment cannot be changed
through policy.
b) Assume velocity is constant. Suppose Fed keeps the
money supply constant as well. Then, when the real GDP grows by 10
percent, prices should decrease by 10 percent.
c) Assume velocity is constant. Suppose Fed wants to
follow a zero-inflation policy. Then, the rate of money...

1-) In the following question, you are asked to determine
whether the statements are true or false. Explain your reasoning to
get full credit:
a) Natural level of unemployment cannot be changed through
policy.
b) Assume velocity is constant. Suppose Fed keeps the money
supply constant as well. Then, when the real GDP grows by 10
percent, prices should decrease by 10 percent.
c) Assume velocity is constant. Suppose Fed wants to follow a
zero-inflation policy. Then, the rate of...

1. The Federal Reserve Act says that the Fed must try to
achieve ______.
A. a balanced budget
B. maximum employment, stable prices, and moderate
long-term interest rates
C. a stable U.S. dollar on foreign exchange markets and
moderate long-term and short-term interest rates
D. an economic environment in which investment in U.S.
stock and money markets is encouraged
The Federal Reserve Act says that the Fed must use
______ to achieve its objectives.
A. bank reserves B. commercial banks...

1.)
Over the period 1987-2017, annual growth in real GDP averaged
2.6% per year, growth in M2 averaged 5.5% per year, and growth in
velocity averaged -0.6% per year.
Calculate the average inflation rate over the period
1987-2017. Answer as a percent, round to one decimal
place and do not enter a "%" sign.
2.)
Assume growth in velocity is equal to zero and potential (trend)
real GDP grows at rate of 2% per year in the long-run.
If the central...

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