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2 May 2018
1 . a) In the long run, prices are áexible. According to the quantity theory of money, what are the e§ects of a 12% increase in the money supply in the long run? b) You are told that Korea raises its money growth rate from 10% to 15%. KoreaÃs rate of real GDP growth is 8%. What is the rate of ináation before and after the change? c) If the nominal interest rate is 5% and ináation is 3%, what is the real interest rate? If an increased rate of money growth raises the rate of ináation to 6% in the long run, what happens to the nominal interest rate according to the Fisher e§ect?
1 . a) In the long run, prices are áexible. According to the quantity theory of money, what are the e§ects of a 12% increase in the money supply in the long run? b) You are told that Korea raises its money growth rate from 10% to 15%. KoreaÃs rate of real GDP growth is 8%. What is the rate of ináation before and after the change? c) If the nominal interest rate is 5% and ináation is 3%, what is the real interest rate? If an increased rate of money growth raises the rate of ináation to 6% in the long run, what happens to the nominal interest rate according to the Fisher e§ect?
Elin HesselLv2
4 May 2018
