Problem Set 5
all questions listed below. Clearly label your answers.
impact will an unanticipated increase in the money supply have on the real
interest rate, real output, and employment in the short run? How will
expansionary monetary policy affect these factors in the long run? Explain.
rapidly has the money supply (M1) grown during the past twelve months? State
the rate of growth (use http://www.federalreserve.gov/releases/h6/) and the most recent release, use the
seasonally adjusted figures. Calculate the rate of growth across the year by
taking the (new amount of M1- old amount of M1)/old amount of M1). Given the
state of the economy, should monetary authorities increase or decrease the
growth rate of money? Explain why.
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
and contrast the impact of an unexpected shift to a more expansionary monetary
policy under rational and adaptive expectations. Are the implications of the
two theories different in the short run? Are the long-run implications
assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 6.