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Exercises7 - π e,the nominal interest rate(i the real...

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Practice Exercises on Chapter 7 1. Analytical Exercises from textbook (pp.236-237): 1, 3. 2. Policy Exercises from text book (p.237): 5. 3. Assume that the economy is initially if full-employment equilibrium and that the money market is also in equilibrium. What is the effect of the increase in the use of ATM’s on the nominal money supply (M s ), the price level (P), the expected rate of inflation (
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Unformatted text preview: π e ),the nominal interest rate (i), the real interest rate (r), and real GDP (Y)? 4. Firm A takes a one year loan from the bank at a nominal interest rate of 10%. Both firm A and the bank expect that over the next year inflation will be 5%. If inflation turns out to be 3% who is hurt in real terms relative to their expectations, firm A or the bank?...
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