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online什么意思Solution for Assignment 4

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2021-01-19 09:43
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帕斯奎尔-online什么意思

2021年1月19日发(作者:amounts)
Solution for Assignment 4

2. An economy begins in long-run equilibrium, and then a change in government
regulations
allows
banks
to
start
paying
interest
on
checking
accounts.
Recall
that
the
money
stock
is
the
sum
of
currency
and
demand
deposits,
including
checking
accounts,
so
this
regulatory
change
makes
holding
money
more
attractive.

a) How does this change affect the demand for money?


Interest-bearing checking accounts make holding money more attractive.

This increases the demand for money.

b) What happens to the velocity of money?


The increase in money demand is equivalent to a decrease in the velocity of money.

Recall
the
quantity
equation
M/P=kY
,
where
k
=
1/V
.
An
increase
in
real
money
balances
for
a
given
amount
of
output
means
that
k
must
increase;
that
is,
velocity
falls.

Interest on checking accounts encourages people to hold money, dollars circulate less
frequently.


c) If the Fed keeps the money supply constant, what will happen to output and
prices in the short run and in the long run?


If
the
Fed
keeps
the
money
supply
the
same,
the
decrease
in
velocity
shifts
the
aggregate
demand
curve
downward.
In
the
short
run
when
prices
are
sticky,
the
economy
moves
from
the
initial
equilibrium,
point
α
,
to
the
short-run
equilibrium,
point
β
. The drop in aggregate demand reduces the output of the economy below the
natural rate.

In the long run, the low level of aggregate demand causes prices and wages to fall. As
prices
fall,
output
gradually
rises
until
it
reaches
the
natural-rate
level
of
output
at
point
γ


(please see the figure below)



d) If the goal of Fed is to stabilize the price level, should the Fed keep the money
supply constant in response to this regulatory change? If not, what should it do?
Why?


The decrease in velocity causes the aggregate demand curve to shift downward. The
Fed
could
increase
the
money
supply
to
offset
this
decrease
and
thereby
return
the
economy to its original equilibrium at point
α
, as the figure shown below.





To the extent that the Fed can accurately measure changes in velocity, it has the ability
to
reduce
or
even
eliminate
the
impact
of
such
a
demand
shock
on
output.
In
particular, when a regulatory change causes money demand to change in a predictable
way,
the
Fed
should
make
the
money
supply
respond
to
that
change
in
order
to
prevent it from disrupting the economy.

e)
If
the
goal
of
Fed
is
to
stabilize
output,
how
would
you
answer
to
part
(d)
change?

If
the
Fed
wants
to
stabilize
output
and
return
it
to
the
natural
rate,
they
should
increase
the
money
supply.
Note
that
increasing
the
money
supply
in
this
case
will
stabilize both output and the price level so that the answer here is the same as in part
d.


3. Suppose the Fed reduces the money supply by 5 percent. Assume the velocity
of money is constant.

a) What happens to the aggregate demand curve?


If the Fed reduces the money supply, then the aggregate demand curve shifts down.
This result is based on the quantity equation MV = PY
, which tells us that a decrease
in money M leads to a proportionate decrease in nominal output PY (assuming that
velocity Vis fixed). For any given price level P, the level of output Y is lower, and for
any given Y
, P is lower.

帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思


帕斯奎尔-online什么意思



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