5. Assume that the economy has been growing at 2 % per year. You are an...

5. Assume that the economy has been growing at 2 % per year. You are an economist working at a Central Bank and need to establish what are the long-run effects of increasing the growth of the money supply to 10 % per year. State and then explain the long-run effects of this change on each of the following (give numerical estimates when possible): a) The annual rate of inflation b) The real interest rate c) The nominal interest rate

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Consider an imaginary economy that has been growing at a rate of 4% per year. Government...

Consider an imaginary economy that has been growing at a rate of 4% per year. Government economists have proposed a number of policies to increase the growth rate but first need to convince the President that the policies will pay off. To do so, they want to present a comparison of the number of years it will take for the economy to double, depending on the growth rate. According to the rule of 70, determine the number of years it...

Consider an imaginary economy that has been growing at a rate of 3% per year. Government...

Consider an imaginary economy that has been growing at a rate of 3% per year. Government economists have proposed a number of policies to increase the growth rate but first need to convince the president that the policies will pay off. To do so, they want to present a comparison of the number of years it will take for the economy to double, depending on the growth rate. Using the rule of 70, determine the number of years it will...

Suppose V is constant, M is growing 5% per year, Y is growing 2% per year,...

Suppose V is constant, M is growing 5% per year, Y is growing 2% per year, and r = 4. a. Solve for i. b. If the Central bank increases the money growth rate by 2 percentage points per year, find Δi. c. Suppose the growth rate of Y falls to 1% per year. - What will happen to π ? - What must the Fed do if it wishes to π constant?

A firm has been growing at 20% per year, and you expect this growth rate will...

A firm has been growing at 20% per year, and you expect this growth rate will continue for another 3 years. After that it will face more competition and slip into a constant growth rate of 5% forever. If the discount rate is 10% and last dividend paid was $3. (a) What will the next dividend be? (b) What is the expected price of the stock 3 years from now? (c) What should the stock price be today?

Lite Events has been growing at a rate of 20% per year, and you expect this...

Lite Events has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 4 years. The last dividend paid was $2, and if the steady (i.e., constant) growth rate after 4 years is 5%, what should the stock price be today? Assume that the stock has a beta of 2.0, Treasury bills yield 3%, and the market risk premium is 6%. *work please

The economy has been growing at an average rate of 2.5% during the last year. The...

The economy has been growing at an average rate of 2.5% during the last year. The chairman of the Federal Reserve has stated that due to the economic growth and improvement in the labor markets, as evidenced by a declining unemployment rate, that the Fed stands ready to increase interest rates. Meanwhile, the government is having to deal with a growing budget deficit and may need to borrow money from the public to fund its operations. This is easily...

Type 1A: Brite Events has been growing at a rate of 20% per year, and you...

Type 1A: Brite Events has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 4 years. The last dividend paid was $2, and if the steady (i.e., constant) growth rate after 4 years is 5%, what should the stock price be today? Assume that the stock has a beta of 2.0, Treasury bills yield 3%, and the market risk premium is 6%.

Tattletale News Corp. has been growing at a rate of 20% per year, and you expect...

Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years. The last dividend paid was $2. The discount rate is 15% and the steady growth rate after 3 years is 4%. a. What is the capital gain in stock price from year 0 to year 1? (Do not round intermediate calculations. Enter your answer as a dollar amount rounded to 3...

XYZ has been growing at a rate of 30% per year in recent years. This same...

XYZ has been growing at a rate of 30% per year in recent years. This same supernormal growth is expected to last for another two years (30% for Year 0 to Year 1 and Year 1 to Year 2), then at a constant rate of 10% thereafter. a. If D0 = RM1.80, rs = 12%, then what is XYZ’s stock worth today? What is the expected dividend yield and its capital gains yield at this time?

In Monetaria real GDP is growing at 2% per year and the money supply is growing...

In Monetaria real GDP is growing at 2% per year and the money supply is growing at 5% per year. suppose that the velocity of the money has been constant. A) Find the Inflation Rate. B) The nominal interest rate is 10%. Find the real interest rate, assuming that inflation will remain the same. C) Suppose you are a small hats retailer. To simplify the analysis, lets assume that the only costs of doing business is paying for the merchandise...

Subjects