Answer to Question #14243 in Macroeconomics for joseph
Suppose real GDP is growing at 4 percent, the money supply is growing at 11 percent, the velocity of money is constant, and the real interest rate is 6 percent.
a. What is the current inflation rate aand nominal inerest rate?
b. If the money supply growth rate inceases to 15 percent, how will your answer in part (a) change?
c. If you were an investor, how would the change in the money supply growth affect your real p rae?trofitability, assuming that you now receive the new nominal inerest?
d. Based on your previous answers, would you prefer a fixed or a floating interest on your investment? Which you would prefer if you thought the money supply growth was going to be reduced?
(a) M/P=Y/V Y - growing by 4% so coefficient = 1.04 M - growing by 11% so coefficient = 1.11 V - constant =1 1.11/P=1.04/1 P=1.11/1.04≈1.067≈+6.7%
There are certain things that people in the business world frown upon. Things like lows in the economy, housing crisis,…
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