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Monetary Theory and Policy. Use the equation of exchange to answer the following questions and assume that the velocity of money is fixed at V = 7.5 throughout this problem.
The equation of exchange is × = × . The price level given in this equation is the GDP price index discussed on page 110 of the textbook (many people call it the GDP price deflator). In order to use the GDP price index in this equation, we need to divide it by 100 (its base year value). So we use a price level of 1.25 instead of 125, i.e. 1.25 = A price level of 112 would be 1.12 in this equation, etc… If this causes any confusion, please let me know.
a. Suppose that the economy is in long-run equilibrium. If the money supply is $2 trillion and the price level is 1.25, show that potential output is $12 trillion.
b. Again, suppose the Fed has increased the money supply by 10% to $2.2 trillion, what happens to the price level after the economy has adjusted back to full employment? Does it go up or down? What is the new price level? Show your work.
Why might these firms agree to form a cartel. If such a cartel is formed, use the prisoner's dilemma to explain why it may or may not survive.
You own a consulting firm and are approached by a potential client with the following problem: Consider two firms—one that produces electricity, the other is a laundry/dry cleaning business. Identify and explain the issues involved in this situation..
Mirk Labs is a pharmaceutical company that currently enjoys a patent monopoly in Europe, Canada, and the United States on Zatab, an allergy medication. The global demand for Zatab is: Qd = 15.0 0.2P where Qd is annual quantity demanded (in millions o..
Identify and discuss at least two economic phenomena for which the linear-in-parameters/linear-in-variables regression model may not be appropriate (besides any mentioned in the text).
The inflation-free rate (real rate) is 2.3% per year and the inflation rate is 2.03% per year. The effective interest rate (market rate) is therefore
Federal excise taxes on gasoline vary widely across the developed world. The United States has the lowest taxes at USD $0.40 per gallon (or L0.07 per litter), Canada has taxes of $0.60 per gallon, Japan and much of Europe is $2.00 per gallon, while B..
Let us imagine you are a consultant who has just been hired by a small business owner as an industry specialist. For this discussion you will identify one specific small business that you own, know the owner well or frequent as a customer. As the bus..
Why does a newspaper dispenser open to a stack of newspapers and essentially “trusts” a consumer to take just one copy whereas a soft drink vending machine does not “trust” consumers and dispenses one can for each purchase? Describe how marginal util..
What are the potential implications of globalization without consideration of cultural differences on ethical issues? Cite specific examples.
You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a building for $2,000 per month and hire three employees who each work eight-hour shifts at a wage of $10.00 per hour (each works a total of 40 hours per week). Are there..
Give a detailed explanation about how the engineer's income generation as described above affects GDP and GNP of U.S.
A simple random sample of 60 items from a population with = 9 resulted in a sample mean of 33.
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