Suppose the velocity of money is constant. The money stock is growing 5% per year, Real...
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Suppose the velocity of money is constant. The money stock is growing 5% per year, Real GDP is growing 2% per year, and the real interest rate is 4 percent. a. Calculate the growth rate of nominal GDP and the inflation rate. b. Calculate the nominal interest rate. c. Suppose the growth rate of real GDP falls to 1% per year. Calculate the new inflation rate. d. Compute a new growth rate of the money stock which will allow the Fed to restore the initial inflation rate as derived in part a. Suppose the velocity of money is constant. The money stock is growing 5% per year, Real GDP is growing 2% per year, and the real interest rate is 4 percent. a. Calculate the growth rate of nominal GDP and the inflation rate. b. Calculate the nominal interest rate. c. Suppose the growth rate of real GDP falls to 1% per year. Calculate the new inflation rate. d. Compute a new growth rate of the money stock which will allow the Fed to restore the initial inflation rate as derived in part a.
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