ECON 2G03 Lecture Notes - Demand For Money, Money Supply, Savings Account
20 Sep 2012
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Chapter 11 homework answers: a. p = 2. Since the left hand side must equal the right hand side, nominal gdp (p*y) will not change. 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%. 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%. Money demand will decrease: the price level will rise as (1/p) falls. M: if the bank of canada decreases the money supply, the price level will remain constant. If velocity is constant and the bank of canada wants the inflation. Vm rate to be zero, then the money supply must grow at the same rate as real gdp.
