Chapter 20: Q 3. (page 546)
If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain your answer.
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Suppose the liquidity preference function is given by
Use the money demand equation, along with the following table of values, to calculate the velocity for each period.
If velocity and aggregate output remain constant at and billion, respectively, what happens to the price level if the money supply declines from billion to billion?
What happens to nominal GDP if the money supply grows by but velocity declines by ?
Wikipedia has a detailed account of hyperinflationary episodes in a number of countries throughout history. Go to the page at https://en.wikipedia.org/wiki/ Hyperinflation#Notable_hyperinflationary_episodes. Which of the countries listed had the worst hyperinflationary episode? Which country has the most recent hyperinflationary episode?
Some payment technologies require infrastructure (e.g., merchants need to have access to credit card swiping machines). In most developing countries historically this infrastructure has either been nonexistent or very costly. However, recently mobile payment systems have expanded rapidly in developing countries as they have become cheaper. Everything else being equal, would you expect the transaction component of the demand for money to be increasing or decreasing in a developing country relative to a rich country?
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