ass3 - Econ 102 Roger E A Farmer Fall 2008 Assignment for...

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Econ 102 Roger E A Farmer Fall 2008 Assignment for Week Three 1. Suppose nominal GDP=40 and M=16. Compute the propensity to hold money, k, and the velocity of circulation, v. What are the units of each? 2. Briefly explain why the modern version of the quantity theory of money is a better description of the US data than the old version. 3. In year t, the nominal interest rate is 5%. In year t+1, the nominal interest rate is 6%. Keeping all else constant, in which year should the demand for money be higher according to the modern version of the quantity theory of money? Explain your answer. 4. Find the demand function for money when the production function is given by () 1 10 1 v v v M Ya K a a v p ⎛⎞ ⎜⎟ =+ < < < ⎝⎠ 1 < 5. According to the quantity theory of money, what should happen to nominal GDP if the money supply doubles? Why? 6. Suppose P=2, M=12 and k=0.4, where P, M, k are respectively the price level, money
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ass3 - Econ 102 Roger E A Farmer Fall 2008 Assignment for...

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