The closed economy of Breadistan produces and consumes only bread. Breadistans aggregate production - which necessitates...
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The closed economy of Breadistan produces and consumes only bread. Breadistans aggregate production - which necessitates no intermediate goods- of bread is depicted in the following table. 1200 1201 1202 1203 1204 1205 Year 1201 7(a) Calculate real GDP growth in Breadistan for each year from 1201 to 1205. Provide your ans in percent and rounded to one place after the decimal. 1202 1203 1204 1205 100.0 101.0 100.0 105.0 115.0 115.0 Year Loaves of bread Growth rate in % 7(b) Assume that the quantity theory of money holds in every period in Breadistan. You are the governor of Breadistan's central bank. Your mandate is to achieve exactly 2% Inflation in every year. You can directly control the money supply. How has the supply of money to grow in each year from 1200 to 1205 to keep inflation stable at 2%? Provide your answer in percent and rounded to one place after the decimal. Growth rate of money supply (in %) Year 1201 1202 1203 1204 1205 Hint: The inflation equation reads inflation rate = growth rate of money - growth rate of real GDP. Maximum marks: 3 7(c) Assume that in 1204, you expected real GDP to grow between 1204 and 1205 at the same rate as between 1203 and 1204. You adjusted the supply of money accordingly. In 1205, however, you were surprised by lower real GDP growth, as shown in the table. How much additional inflation have you created? The inflation rate in 1205 was percentage points above its target of 2 percent. Provide your answer rounded to one place after the decimal point. Maximum marks: 3 7(d) Current inflation rates are at very high levels not seen in 40 years in most countries. What can central banks do to tame inflation? What risk does that pose? Explain, briefly, the inherent policy trade-off faced by central banks. Fill in your answer here The closed economy of Breadistan produces and consumes only bread. Breadistans aggregate production - which necessitates no intermediate goods- of bread is depicted in the following table. 1200 1201 1202 1203 1204 1205 Year 1201 7(a) Calculate real GDP growth in Breadistan for each year from 1201 to 1205. Provide your ans in percent and rounded to one place after the decimal. 1202 1203 1204 1205 100.0 101.0 100.0 105.0 115.0 115.0 Year Loaves of bread Growth rate in % 7(b) Assume that the quantity theory of money holds in every period in Breadistan. You are the governor of Breadistan's central bank. Your mandate is to achieve exactly 2% Inflation in every year. You can directly control the money supply. How has the supply of money to grow in each year from 1200 to 1205 to keep inflation stable at 2%? Provide your answer in percent and rounded to one place after the decimal. Growth rate of money supply (in %) Year 1201 1202 1203 1204 1205 Hint: The inflation equation reads inflation rate = growth rate of money - growth rate of real GDP. Maximum marks: 3 7(c) Assume that in 1204, you expected real GDP to grow between 1204 and 1205 at the same rate as between 1203 and 1204. You adjusted the supply of money accordingly. In 1205, however, you were surprised by lower real GDP growth, as shown in the table. How much additional inflation have you created? The inflation rate in 1205 was percentage points above its target of 2 percent. Provide your answer rounded to one place after the decimal point. Maximum marks: 3 7(d) Current inflation rates are at very high levels not seen in 40 years in most countries. What can central banks do to tame inflation? What risk does that pose? Explain, briefly, the inherent policy trade-off faced by central banks. Fill in your answer here
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In order to calculate the real GDP growth rate for Breadistan for each year from 1201 to 1205 we wil... View the full answer
Related Book For
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
Posted Date:
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