a. This table shows some economic indicators (annualized rates) of a closed economy: C. Nominal interest...

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a. This table shows some economic indicators (annualized rates) of a closed economy: C. Nominal interest rate Inflation rate Growth rate in real GDP Period 1: 2001 - 2011 5% 3% 4% (4 marks) b. Using the Quantity Theory of Money, find the implied growth rate of money supply and real interest rate in Period 1. State your assumptions. In fact, in Period 2, the central bank maintained the same growth rate of money supply as that calculated in (a). From the information given, what would have happened to the income velocity of money in Period 2? How does it relate to the change in the nominal interest rate? Explain briefly. (3 marks) Period 2: 2012 - 2022 3% 3% 1% After Period 2, a new Chairman of the central bank will assume duty. The general public perceives him to be a "monetary dove" - favoring a "loose monetary policy". How would this affect the expected inflation rate, nominal interest rate, and the price level in Period 2? Explain briefly. Note: in your answer, indicate which Period you are referring to. (5 marks) a. This table shows some economic indicators (annualized rates) of a closed economy: C. Nominal interest rate Inflation rate Growth rate in real GDP Period 1: 2001 - 2011 5% 3% 4% (4 marks) b. Using the Quantity Theory of Money, find the implied growth rate of money supply and real interest rate in Period 1. State your assumptions. In fact, in Period 2, the central bank maintained the same growth rate of money supply as that calculated in (a). From the information given, what would have happened to the income velocity of money in Period 2? How does it relate to the change in the nominal interest rate? Explain briefly. (3 marks) Period 2: 2012 - 2022 3% 3% 1% After Period 2, a new Chairman of the central bank will assume duty. The general public perceives him to be a "monetary dove" - favoring a "loose monetary policy". How would this affect the expected inflation rate, nominal interest rate, and the price level in Period 2? Explain briefly. Note: in your answer, indicate which Period you are referring to. (5 marks)

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If the central bank in our economy were to increase the money supply by 4 every year we would expect the inflation rate to be 3 This is because the mo... View the full answer