Real money supply would have increased. , the denominator would have increased by less than increase in the numerator. 4 Student number: __________________________
Economics 3B Semester Sick Test 1 – 14 October 2013 1.4 Using your answer in 1.3 above, depict the impact on the following three markets according to the classical school. Start from the equilibrium in all markets. (10) Question A2  You are given the following information: Calculate the following: Nominal GDP 16 000 Money supply 4 000 Consumer Price Index 100 Interest rate level 7% Price level 100 a) Velocity (2) MV = PY 4000V = 16 000 V = 4 b) Real GDP (2) = 160 5 Student number: __________________________ (1) Capital market (2) Loanable funds (3) Bond market r i P S/I LF Bond I S r0 i0
Economics 3B Semester Sick Test 1 – 14 October 2013 c) Calculate velocity if money supply decreases to R800 (1) 800V = 1 6000 V = 20 6 Student number: __________________________
Economics 3B Semester Sick Test 1 – 14 October 2013 Question A3  3. You are given the following information: 3.1 Use the data to construct a yield curve (4) 3.2 If expectation theory holds true, what does the yield curve tell us? Explain you answer. (3) Interest rate today 10% Interest rate expected in 2 years 5% Interest rate expected in 4 years 2% Return on 1-year bond 6% Return on 2-year bond 12% Return on 4-year bond 13% Short term interest rates are expected to increase. Positively sloped yield curve. According to the expectation theory, the long term interests rate equals the average of the short term interest rates. 7 Student number: __________________________ Yield Maturity 1 year 2 years 4 years 6% 12% 13%
Economics 3B Semester Sick Test 1 – 14 October 2013 Question A4  4.1 Indicate with a cross how each of the listed events will affect: (1) the actual M3; and (2) the maximum potential M3, ceteris paribus, if money supply is endogenous. For the purpose of this question, assume that the money market is in equilibrium on the part of the money supply curve that is elastic with respect to the interest rate.
- Spring '11
- Inflation, Foreign exchange market