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ECON 2G03 (60)
Lecture

Ch11_sol.pdf

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Department
Economics
Course
ECON 2G03
Professor
Hannah Holmes
Semester
Summer

Description
CHAPTER 11 HOMEWORK ANSWERS 1. a. P = 2 2=V b. M × =P × ΔM ΔV ΔP ΔY + = + M V P Y 0+ 0 = ?+5 Since the left hand side must equal the right hand side, nominal GDP (P*Y) will not change. Prices will fall by 5%. c. M ×V = P×Y If V is constant and Y is growing at 5% per year, then in order to keep P constant, the Fed should increase M by 5%. This means setting M = $525billion. d. M ×V = P×Y If V is constant and Y is growing at 5% per year, then in order to have an increase in P equal to 10%, the Fed should increase M by 15%. This means setting M = $575billion. 2. a. Money demand will decrease. b. The price level will rise as (1/P) falls. 1/P M s 1/1 M d 1/P2 d M ’ M1 M c. If the Bank of Canada decreases the money supply, the price level will remain constant. 1/P s s
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