Question

For each of the following questions, evaluate whether the statement is “true” or “false”. Then, provide a brief explanation to justify your answer. (40 possible points)

1. If the velocity of money increases and nothing else changes, nominal GDP will rise.
2. If the required reserve rate is 5%, bank runs will be more likely than if the required reserve rate is 20%.
3. If the required reserve rate is increased from 10% to 20%, the amount of money in society will double.
4. If the value of M1 increases and nothing else changes, the value of M2 will also increase.

Answer 1

Answer:-

Given That:-

1.If the velocity of money increases and nothing else changes, nominal GDP will rise.

According to QTM

where, M is supply

V is velocity of money

P is price level

y is Real GDP

is nominal GDP

% + % =%+%

0+%=% nominal GDP.

% nominal GDP = %

TRUE: If the velocity of money increases and nothing else change nominal GDP will rise.

2.If the required reserve rate is 5%, bank runs will be more likely than if the required reserve rate is 20%. The reserve ratio indicates the portion of their deposit that commercial banks must hold.

TRUE:- If the required reserve rate is 5% banks runs will likely than if the required reserve rate is 20 %

3.If the required reserve rate is increased from 10% to 20%, the amount of money in society will double

Money multiplier =

Money multiplier =

Money multiplier =

If the required reserve rate is increased from 10% to 20 % then money multiply fall from 10 to 5.

Hence, The amount of money in society will get half not double.

False: if the required reserve rate is increased from 10% to 20 % The amount of money in society will double.

4.If the value of M1 increases and nothing else changes, the value of M2 will also increase.

M1 is the component of M2.

If the value of M1 increased and nothing else changes , the values of M2 will also increase

TRUE: If the value of M1 increased and nothing else changes, the value of M2 will also increase.