The table below contains the following variables, growth rates of real GDP, M1, M2, velocity of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The table below contains the following variables, growth rates of real GDP, M1, M2, velocity of M1 and M2 (denoted V1 and V2), the federal funds rate (FFR), and the CPI inflation rate. (a) State the Quantity Equation in levels and growth rates, stating what each variable means. (1pt) (b) For each year in the table, use the quantity equation to predict the equilibrium inflation rate using the growth rate of M1 (with corresponding change in velocity, g_V1). (1.5pts) (c) For each year in the table, use the quantity equation to predict the equilibrium inflation rate using the growth rate of M2 (with corresponding change in velocity, g_V2). (1.5pts) (d) For each year, predict the equilibrium inflation rate assuming the Quantity Theory of Money holds using the growth rate of M1 (i.e. assuming velocity is constant, g_V1=0). (1.5pts) (e) For each year, predict the equilibrium inflation rate assuming the Quantity Theory of Money holds using the growth rate of M2 (i.e. assuming velocity is constant, g_V2=D0). (1.5pts) (f) According to your calculations and comparing to CPI inflation data, g_CPI, given in the table, which is a better predictor of inflation, M1 ((b) & (d)) or M2 ((c) & (e))? Similarly, which is a better predictor of inflation, assuming the quantity theory holds ((d) & (e)), or not ((b) & (c))? (2pt) Table 8.3: Growth Rates g_RGDP g_M1 g_M2 g_V1 g_V2 g_FFR g_CPI 1990 1.9 3.6 5.5 2.0 0.2 8.10 5.4 1995 2.7 -0.2 2.0 5.1 2.8 5.84 2.8 2000 4.1 0.1 6.0 6.3 0.4 6.24 3.4 2005 3.3 2.1 4.3 4.5 2.2 3.21 3.4 2010 2.5 6.4 2.5 -2.5 1.2 0.18 1.6 2015 2.4 7.5 5.9 (Source: FRED II, St. Louis Federal Reserve) -3.8 2.3 0.13 0.1 Oo m 5as The table below contains the following variables, growth rates of real GDP, M1, M2, velocity of M1 and M2 (denoted V1 and V2), the federal funds rate (FFR), and the CPI inflation rate. (a) State the Quantity Equation in levels and growth rates, stating what each variable means. (1pt) (b) For each year in the table, use the quantity equation to predict the equilibrium inflation rate using the growth rate of M1 (with corresponding change in velocity, g_V1). (1.5pts) (c) For each year in the table, use the quantity equation to predict the equilibrium inflation rate using the growth rate of M2 (with corresponding change in velocity, g_V2). (1.5pts) (d) For each year, predict the equilibrium inflation rate assuming the Quantity Theory of Money holds using the growth rate of M1 (i.e. assuming velocity is constant, g_V1=0). (1.5pts) (e) For each year, predict the equilibrium inflation rate assuming the Quantity Theory of Money holds using the growth rate of M2 (i.e. assuming velocity is constant, g_V2=D0). (1.5pts) (f) According to your calculations and comparing to CPI inflation data, g_CPI, given in the table, which is a better predictor of inflation, M1 ((b) & (d)) or M2 ((c) & (e))? Similarly, which is a better predictor of inflation, assuming the quantity theory holds ((d) & (e)), or not ((b) & (c))? (2pt) Table 8.3: Growth Rates g_RGDP g_M1 g_M2 g_V1 g_V2 g_FFR g_CPI 1990 1.9 3.6 5.5 2.0 0.2 8.10 5.4 1995 2.7 -0.2 2.0 5.1 2.8 5.84 2.8 2000 4.1 0.1 6.0 6.3 0.4 6.24 3.4 2005 3.3 2.1 4.3 4.5 2.2 3.21 3.4 2010 2.5 6.4 2.5 -2.5 1.2 0.18 1.6 2015 2.4 7.5 5.9 (Source: FRED II, St. Louis Federal Reserve) -3.8 2.3 0.13 0.1 Oo m 5as
Expert Answer:
Answer rating: 100% (QA)
a The quantity theory of money establishes a relationship between money output and prices to understand inflation According to the quantity theory of ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
Students also viewed these accounting questions
-
You sold short 100 shares of Global Payments, Inc. common stock on margin at $215.42 per share. Assume the initial margin is 50% and the maintenance margin is 30%. One year later, the stock price...
-
The table below contains selected information from recent financial statements of The Home Depot, Inc., and Lowe's Companies, Inc., two companies in the home improvement retail industry ($ in...
-
The table below contains selected information from recent financial statements of The Home Depot, Inc., and Lowe's Companies, Inc., two companies in the home improvement retail industry ($ in...
-
Decedent died owning an insurance policy that would pay $2 million to Beneficiary. Six months later, the insurance company paid Beneficiary $2 million plus $50,000 interest. What portion of the...
-
How does the existence of liquidity constraints affect the volatility of investment? Why might liquidity constraints be more binding on smaller firms than on larger ones and on U.S. firms than on...
-
In evaluating the performance of new hires, the human resources division found that candidates with higher scores on its qualifying exam performed better. In a multiple regression that also used the...
-
On January 2, 2018, The Register, a science and technology news site based in Britain, published an article revealing the existence of two major bugs leaving virtually all computers and smartphones...
-
Customers arrive at an automated coffee vending machine at a rate of 4 per minute, following a Poisson distribution. The coffee machine dispenses a cup of coffee in exactly 10 seconds. (a) What is...
-
Please create the model of a library database. Describe the one-to-many relationships in the library database What is the name of the DDL file you exported in step 2.3 Generate DDL ? Create a...
-
The spool has a mass of 30 kg and a radius of gyration k o = 0.25 m. Block A has a mass of 25 kg, and block B has a mass of 10 kg. If they are released from rest, determine the time required for...
-
When programming using object-oriented methods in Python, when might you use a static method? (1 mark) A. When there is no need to access any of the attributes of the method B. When you only want to...
-
Sketch the graph of f(t)=1-u(t-4).
-
Esther pays $ 4 6 7 per month for 6 years for a car. She made a down paymnent of $ 3 , 7 0 0 . If the loan costs 7 . 1 % per year compounded monthly , what was the cash price of the car ?
-
You deposit $ 5 0 0 in a savings account paying 1 . 5 % simple interest.How much interest will you earn in 4 years?How much is in the account at the end of 4 years?
-
(a) What is the concentration of hydrogen at the B face in kilograms of H per cubic meter? C"H(B) == i kg/m (b) What is the concentration of hydrogen at the A face in kilograms of H per cubic meter?...
-
2. The following are Stakeholders of financial statements. (2.5 Marks) Name of the stakeholders Type of users 1. Supplier 2. Owners 3. Labor union 4. Financing Manager 5. Investor Required: Identify...
-
Using statistics in the healthcare industry requires a foundational understanding of statistics and their applications. Imagine that you are a new data analyst for a hospital. You have replaced an...
-
The financial statements of Eastern Platinum Limited (Eastplats) are presented in Appendix A at the end of this textbook. Instructions (a) Does East plats report any investments on its statement of...
-
The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2011 ($ in 000s): sales revenue, $15,300; cost of...
-
Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. 1. On June 30, 2011, the Johnstone Company purchased equipment from...
-
Differentiate between the accumulated benefit obligation and the projected benefit obligation.
-
Graph the following table: a. What is marginal product and average product at each level of production? b. Graph marginal product and average product. c. Label the areas of increasing marginal...
-
If average product is falling, what is happening to short-run average variable cost?
-
If marginal cost is increasing, what do we know about average cost?
Study smarter with the SolutionInn App