Chapter 14 Money and The Economy: Pre-Class & In-Class Activities Packet Name/I.D. Number : Section: Date: Part 3. Discu

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Chapter 14 Money And The Economy Pre Class In Class Activities Packet Name I D Number Section Date Part 3 Discu 1 (129.21 KiB) Viewed 32 times

Chapter 14 Money and The Economy: Pre-Class & In-Class Activities Packet Name/I.D. Number : Section: Date: Part 3. Discussion Questions and Problems 1. Classical economists believed that changes in the money supply affect in the economy, but not 2. What is the Equation of Exchange presented in the form of an Identity? where: M represents Money Supply; V represents Velocity; = means must be equivalent to; P represents Price; and Q represents Real GDP 3. In a large economy such as ours, it is impossible to simply count how many times each dollar changes hands (velocity). How do we calculate V? 4.Can the money supply support a GDP level greater than itself? Explain your answer. 5. According to the simple quantity of money, what will happen to Real GDP and the price level as the money supply rises? 6. In monetarism, how will each of the following affect the price level in the short run? A. An increase in velocity B. A decrease in velocity C. An increase in the money supply D. A decrease in the money supply 7. In monetarism, with respect to the interest rate: A. What is the liquidity effect? B. What is the price-level effect? C. What is the expectations effect? 8.To a potential borrower, which would be more important: the nominal interest rate or the real interest rate? Explain. 9. What does inflation look like in a country that imposes and maintains price ceilings on goods and services? 10. According to monetarism, an increase in the money supply will lead to a rise in Real GDP in the long run. Do you agree or disagree? Why?