🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Economics
1
answer
0
watching
81
views

Milton Friedman argued that interest sensitivity of money demand is low but positive. What does that imply for evolution over time in nominal and real interest rate if monetary policy follows the constant money growth rule? Is there any problem to this?

Watch
1
answer
0
watching
81
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Mahe Alam
Mahe AlamLv10
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Consider the following demand equation for money.

(M/P)d = kY

a) In words, explain what the velocity of money is.

b) Let the supply of (real) money be given by M/P. Using the money demand equation, solve for the velocity of money.

c) Suppose that real GDP is expected to grow 3% over the next year and k is constant. What is the expected rate of inflation if the Fed holds the money supply constant?

d) Suppose that the Fed (Federal Reserve) targets inflation to be 2% over the coming year. What should be the targeted growth rate of the money supply?

e) Suppose that growth in real GDP ends up being 1%. Assuming the Fed carries out its open market operations, expecting a growth rate of 3%, what will happen to the rate of inflation?

f) Is there reason to think that demand for money should be a function of the nominal interest rate? Why?

g) Modify the money demand equation that is given to include the nominal interest rate.

1. Answer True or False for each of the following.

Rational Expectations believes that markets accurately incorporate all known info

According to the Monetarists wages and prices are completely flexible.

The Monetarists believe that the velocity of money is a constant.

The Monetarists believe that fiscal policy results in a high level of crowding out.

Supply side economists believe that the government skews the incentive system.

The R-E economists believe that money affects real economic variables.

The Monetarists admit that wages and prices are sticky in the short run.

According to supply-siders tax cuts should go to households.

According to Milton Friedman, the Fed should increase the money supply at a constant rate each year.

According to the original supply-siders, raising taxes can raise tax revenue some of the time.

2. The money supply is currently growing at 8% per year. According to the monetarists what will happen to the price level? What should the money supply be doing?

In the liquidity-preference framework, suppose that the Fed changes the money supply to keep the nominal interest rate unchanged whenever the demand for money shifts. Show what happens to the quantity of money and the nominal interest rate if the money-demand curve shifts to the right.

Suppose that the liquidity effect is small, people monitor changes in the money supply carefully, and prices and inflation expectations adjust rapidly. In this situation, describe the movement of the nominal interest rate when there is a permanent decline in the growth rate of the money supply.

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in