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If the money supply is growing at 7 percent, the real interest rate is 3 percent, and the real of growth rate of GDP is 2 percent, what should the nominal interest rate be?
Delta;Y=+2% Delta;M=+7% Delta;V=0% r=3% M/P=Y/V (1+Delta;M%)/ (1+Delta;P%) = (1+Delta;Y%) / (1+Delta;V%) (1+7%)/ (1+Delta;P%) = (1+2%) / (1+0%) 1.07/(1+Delta;P%)=1.02 (1+Delta;P%)=1.07/1.02asymp;1.049 pi;%=Delta;P%asymp;4.9%
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2. The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of the key roles is conducting monetary policy.
a. What is monetary policy?
Monetary policy is one of the tools that a national government uses to influence its economy. In the USA, monetary policy comprises the Federal Reserve's actions and communications to promote...
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Describe the two key tools of monetary policy, and describe how they would be used by the Bank of Canada to implement a contractionary monetary policy
- The Bank of Canada may increase the Central Bank's discount rate in order to increase the cost of loans for business and the public. - The Bank of...
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An increase in the budget deficit is the result of: (2)
(a) Expansionary monetary policy;
(b) Contractionary monetary policy;
(c) Expansionary fiscal policy;
(d) Contractionary fiscal policy.
(c) Expansionary fiscal policy
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how do you think monetary tightening policy change would affect nominal interest rate?
The effect would occur when the Central Bank tightens policy/makes money tight by raising short-term interest rates through policy changes to the discount rate, which is also referred to as...
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with the aid of the Phillip's curve explain what happens to unemployment in the shorts run and in the long -run if central bank unexpectedly pursues contractionary monetary policy
Contractionary Monetary Policy The central bank, at some point, needs to control the interest rates and supply of money in an economy. They achieve this by using a tool called monetary...
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Q.1.3 An increase in the budget deficit is the result of: (2) (1) Expansionary monetary policy; (2) Contractionary monetary policy; (3) Expansionary fiscal policy; (4) Contractionary fiscal policy.
(1) Expansionary fiscal policy
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an increase in monetary growth leads to decrease in nominal interest rates in the short run, but to an increase in nominal interest rates in the medium run. Explain.
In the long run, a higher rate of money growth leads to higher ongoing inflation with no effect on output or employment. The real interest rate returns to its previous...
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Explain when the FED would use a contractionary monetary policy and an expansionary monetary policy, and what the overall result would/could be.
Contractionary monetary policy is when the economic growth lowers down to prevent inflation. The pursue of FED is to control inflation of the economy rate of 2%.However the FED wants...
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What is Monetary Policy? Discuss the effects of each instruments of the monetary policy on money supply, interest rate, income and employment.
Monetary policy is the control of the quantity of money available in an economy and the channels by which new money is supplied. By managing the money supply, a central...
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