{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

11F_Quiz1_Sol

# 11F_Quiz1_Sol - Econ 204 Instructor J Li 1 QUIZ 1 ANSWERS...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 204 Instructor: J. Li 1 QUIZ 1 ANSWERS, FALL 2011 Simple money demand: ( M / P ) d = k Y General money demand: ( M / P ) d = L ( i, Y ) = Y /2 i Quantity equation: MV = PY (a) Explain: difference between quantity equation and QTM – QTM assumes velocity in quantity equation is constant over time. +0.3 Explain: how price level is determined by QTM. Given constant velocity the nominal GDP ( PY ) is determined by money supply; +0.4 real GDP (or Y ) is determined by factor production; +0.4 therefore the price level is determined by the nominal-to- real GDP ratio ( PY / Y ). +0.4 (b) Given: simple money demand and quantity equation. Find and explain: k In equilibrium real money balances ( M / P ) equal ( M / P ) s = ( M / P ) d = kY +0.25 where M / P is the purchasing power of the stock of money. Rewrite the above equation we have M × (1/ k ) = PY k = 1/ V +0.25 Interpretation: when people hold lots of money relative to their incomes, money changes hands infrequently ( V is small),...
View Full Document

{[ snackBarMessage ]}

### Page1 / 2

11F_Quiz1_Sol - Econ 204 Instructor J Li 1 QUIZ 1 ANSWERS...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online