Chapter 16: Q.10 (page 369)
Consider the following data: The money supply is \(1 trillion, the price level equals 2, and real GDP is \)5 trillion in base-year dollars. What is the income velocity of money?
income velocity of money istrillion
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Consider figure 16-7. Discuss a specific monetary policy action that Fed's Trading Desk could implement in order to induce the effects traced out by this figure.
Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all of its policy instruments except interest on reserves, what should the Fed do with its policy tools?
You learned in an earlier chapter that if a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. In this chapter, you learned that the Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand.
a. Propose one monetary policy action that could eliminate the recessionary gap in the short run.
b. In what way might society gain if the Fed implements the policy you have proposed instead of simply permitting long-run adjustments to take place?
Explain how the Federal Reserve has implemented a credit policy since 2008.
Why do you suppose that corporate cash holdings have decreased slightly since 2015?
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