AK_Chapter_11 - SOLUTIONS TO TEXT PROBLEMS Chapter 11...

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SOLUTIONS TO TEXT PROBLEMS: Chapter 11 Questions for Review 1. It reduces the real value of money. 2. A proportional increase in the price level. 3. Nominal variables are measured in monetary units, real variables are measured in physical units. Only nominal variables are affected by changes in the quantity of money. 4. One who holds money loses purchasing power. 5. Nominal interest rate up, no effect on the real interest rate. 6. Shoeleather costs, menu costs, increased variability of relative prices, unintended changes in tax liabilities, confusion and inconvenience, arbitrary redistributions of wealth. 7. Creditors benefit and debtors lose. Problems and Applications 1. a. P = (Nominal GDP )/(real GDP) = 2. P = (Nominal GDP )/M = 20. b. P must fall by 5%; nominal GDP is unchanged. c. increase the money supply by 5%. d. increase the money supply 15 percent. 2. a. shift to the left. b. price level rises. c. reduce the money supply. 3. the money growth rate = the growth rate of output.
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