1. Suppose the velocity of money is constant. Real GDP grows by 6 percent per year,...

1. Suppose the velocity of money is constant. Real GDP grows by 6 percent per year, the money stock grows by 10 percent per year and the real interest rate is 5 percent. According the information above the nominal interest rate is ____________ percent.

a. 1

b. 9

c. 16

d. 4

e. 11

2. The natural rate of unemployment may be reduced by

	a.	increase in minimum wages.
	b.	efficiency wages.
	c.	generous unemployment insurance.
	d.	public retraining programs.

Assume that the currency-deposit ratio is 0.4 and the required reserve ratio is 0.3. The Federal Reserve carries out open-market operations, selling $4 million worth of bonds to banks. This action will decrease the money supply by ______________ million.

	a.	$3.5
	b.	$8
	c.	$2.8
	d.	$4
	e.	$12

Suppose V is constant, M is growing 9% per year, Y is growing 4% per year, where V is velocity, M is the quantity of money, and Y is real output. Suppose the growth rate of Y rises to 6% per year. To keep inflation constant the Fed must __________ the money growth rate by __________ percentage point per year.

	a.	increase; 1
	b.	reduce; 2
	c.	increase; 2
	d.	reduce; 1

Solutions

Expert Solution

1) Use quantity equation of exchange

g% + p% = m% + v%

p% = m% + v% - g%

= 10% + 0% - 6%

= 4%

Now real interest rate = nominal interest rate - inflation

5 + 4 = 9% = nominal interest rate

select B

2) Select D

3) Select B

4) Select C.

Rahul Sunny answered 1 year ago

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