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ECON 214 Module/Week 6 PROBLEM SET 5




Question;PROBLEM SET 5Complete all questions listed below. Clearly label your answers.1. What impact will an unanticipated increase in the money supply have on the real interestrate, real output, and employment in the short run? How will expansionary monetarypolicy affect these factors in the long run? Explain.2. How rapidly has the money supply (M1) grown during the past twelve months? State therate of growth(use the most recentrelease, use the seasonally adjusted figures. Calculate the rate of growth across the yearby taking the (new amount of M1- old amount of M1)/old amount of M1). Given the stateof the economy, should monetary authorities increase or decrease the growth rate ofmoney? Explain why.3. 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.4. Compare and contrast the impact of an unexpected shift to a more expansionary monetarypolicy under rational and adaptive expectations. Are the implications of the two theoriesdifferent in the short run? Are the long-run implications different? Explain.


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