Consider a central bank that wants to keep the inflation (the growth rate of the price level) at exactly 2.5% over the next year. The bank鈥檚 economists estimate that output growth will lead to an increase in the real demand for liquidity of 1.5%.
a) By how much will the central bank change the money supply to achieve its goal?
b) Briefly explain how the central bank can increase the money supply.
Thanks for helping
Question about MONEY and Exchange Rates?inflation rate
a) Assuming money velocity does not change, money supply will have to be expanded by 2.5% + 1.5% = 4.0%.
b) By buying government bonds in the open market or directly from the government.
No comments:
Post a Comment