ECON 204 Assignment Chapter 26 Altieri Student Name__ 1) The statues of the recently established European Central Bank (ECB) state that the primary objective is to maintain price stability. How does this charter differ from that of the Fed? What significance does it have for monetary policy? The primary objective of the ECB is to maintain price stability. However, the Fed is concerned with more then that, like maximizing employment, moderating interest rates and stabilizing prices. This means that the Euro now has an authority to control its supply of money, interest rates and inflation rates to maintain price stability. 2) Suppose price levels were falling 10% per day. How would this affect the demand for money? How would it affect velocity? What can you conclude about the role of velocity during periods of rapid price change? The demand for money would decrease because it has less value so there is less desire for it. This would affect velocity by lowering it as well. Velocity during periods of rapid price change can change quickly but in the long run it is not really affected. 3) The text notes that a 10% increase in the money supply may not increase the price level by 10% in the short run. Explain why. The lags in the economy will cause it not to affect the economy in the short run, because it is delayed.
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- Spring '15
- Inflation, Inflation rates, price stability, rapid price change