Explain quantity theory of money

Reference no: EM13173573

Assume that the Federal Reserve ("the Fed") unexpectedly shifts to restrictive monetary policy. Why would the Fed make such a policy shift? Explain how the Federal Reserve will implement this restrictive monetary and how the effects of this policy will ripple through the economy to impact real output both in the short run(SRAS) and in the long run (LRAS).

Using the Federal Reserve's report (see link below) on Money Stock Measures for June 7, 2012 determine the growth rate of the Seasonally Adjusted M1 Money Supply between January 2011 and January 2012. State the rate of growth as a percent of January 2011 Seasonally Adjusted M1 Money Supply. Given the state of the economy, should monetary authorities increase or decrease the growth rate of money? Explain why.

Is stability in the general level of prices through time important? Why or why not? Should price stability be the goal of monetary policy? Explain your responses.

What is the Quantity Theory of Money? What are its implications? Does the theory have any shortcomings, if so what are they? Have the predictions of the Quantity of Theory of Money proven accurate?

Reference no: EM13173573

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