Reference no: EM132740713
Questions -
Q1. Suppose the Central Bank sells government bonds. Use a graph of the money market to show what this does to the value of money.
Q2. Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. The Central Bank increases the money supply;
b. People decide to demand less money at each value of money
Q3. Inflation distorts relative prices. What does this mean and why does it impose a cost on society?
Q4. If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?
Q5. Nathalie makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Nathalie's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.