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Assume that wages and prices are sticky and that we start at a long-run equilibrium. Assume that at this initial point, the growth rate of the money supply is 4%, the growth rate of the velocity of money is 3% and that the real economic growth rate is 5%. Now assume that there is a negative real shock. After the negative real shock, the inflation rate in the economy is 7%. Now assume that the federal government decides to increase government spending in order to combat the situation resulting from the rise in oil prices. After the increase in government spending, the growth rate of the velocity of money is 8%.
1. After the federal government increases government spending, what is the growth rate of the money supply?
2. After the federal government increases government spending, what is the inflation rate in your graph?
Why would nations favor fixed vs. floating exchange rates for their currencies? Why do some developing nations have a “fear of the float?
Consider the AD/AS model built from the IS/LM. The economy was operating at full employment, but it is suddenly hit by a negative demand shock in the form of a decrease in planned investment at each level of the real interest rate. Compare the initia..
Have you thought about starting your own business? What opportunities seem attractive? What type of financial resources and personal skills would you need to launch a new business? How would you obtain these financial skills and personal resources?
Please answer the following questions and attach your answer as a word document. You may use the book to help craft your answer and there is no time limit other that it is due not later than the end of day, February 21, 2016. What is an economic ren..
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Consider the equation: NX = S + (T-G) - I, afterwards, determine what happens to: Trade balance, public saving, private saving, and investment with respect to the following cases: Government Spending Increases. Foreign Output Increases. Simultaneous ..
The U.S. was on a “gold standard” from 1879 to 1933. Which of the following was a a major disadvantage of being on the gold standard from an economic point of view? the fixed exchange rate made international trade and investment easier. the price of ..
Consider a Bertrand model with two firms facing the market demand Q(p)= 100 - p . Both firms have a constant marginal cost of 20. The firms compete over prices, but each firm has a production capacity of 25 units. If Firm 1 believes that Firm 2 will..
Suppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?
A life insurance salesperson claims the average worker in the city of Cincinnati has no more than $25,000 of personal life insurance. To test this claim, you randomly sample 100 workers in Cincinnati. You find that this sample of workers averages $26..
Recall our example of an investment of $100,000 in research that yields a pioneering invention that has no commercial value, and a subsequent investment of $50,000 in development that yields an improvement that has commercial value of $1 million. In ..
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