Consider the standard dynamic model of money in which the economy is in a steady state with constant levels of output, inflation, and the nominal interest rate. Suppose initially that the steady-state nominal interest rate is 4 percent, the steady-state inflation rate is 2% percent, and the growth rate of the money supply is 2 percent. How will an unanticipated permanent decline in the growth rate of the money supply to 0 percent affect the level of output, the inflation rate, and the nominal interest rate?
What will be an ideal response?
Because the change in the growth rate is unanticipated, it will have real effects during the transition. The liquidity effect will temporarily raise the nominal interest rate, so output will decline temporarily. The new steady state will be one with the same level of output, a lower inflation rate (falling from 2 percent in the old steady state to 0 percent in the new steady state), and a lower nominal interest rate (falling from 4 percent in the old steady state to 2 percent in the new steady state).
You might also like to view...
Of key interest to marketers are the major informational sources to which the consumer will turn and the relative importance of each. Which of the following can be considered an experiential information source?
A) consumer-rating organizations B) mass media C) acquaintances D) Web sites E) personal handling and examination
Both primary and secondary data may be used to solve a research problem, but primary data are more important than secondary data
Indicate whether the statement is true or false
Commonground Collections has been hired to collect past-due medical bills for Lakeview Physicians. List some activities that Commonground may not do pursuant to the FDCPA
Please identify the letter of the choice that best matches the sample questions below.
A. What do you suggest? B. How would you like to resolve the problem? C. How do you generally use the product? D. Do you have a copy of the itinerary? E. Have you contacted customer service before?