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Assume that the marginal propensity to save increases. If the Fed wants to keep the level of output from fluctuating, should it undertake open market purchases or sales? In your answer discuss how the composition of GDP is affected.

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Anne Gillian Duero
Anne Gillian DueroLv10
28 Sep 2019

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Related questions

Suppose this year's money supply is 400billion, nominal GDP is 12 trillion,and real GDP is 6 trillion. Suppose the veliocity of money is constant and economy's output of goods and services (real GDP) rises by 4% each year. What will happen to nominal GDP and the price level when Fed keeps the money supply constant?

a. what is the price level?

b.what is the veliocity of money

c.what will happen to nominal GDP and the price level if Fed keeps the money supply constant?

d.what wil happen to nominal GDP and the price level if the Fed increases money supply from 400 to 500 billions?

e.what money supply should Fed set next year if wants to keep up price level constant?F

f. what money supply should Fed set next yearif it want inflation of 8%?

PLease make sure you answer c,d,e,f, to get full points!!!!

Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.

a. What is the price level? What is the velocity of money?

b. Suppose that velocity is constant and the economy’s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?

c. What money supply should the Fed set next year if it wants to keep the price level stable?

d. What money supply should the Fed set next year if it wants inflation of 10 percent?

(Monetary Policy and an Expansionary Gap) Suppose the Fed wishes to use monetary policy to close an expansionary gap.

a. Should the Fed increase or decrease the money supply?

b. If the Fed uses open-market operations, should it buy or sell government securities?

c. 10. Determine whether each of the following increases decreases, or remains unchanged in the short run: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium real GDP.

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