Chapter 20: Q 5. (page 546)
If the labor force becomes more productive over time, how would the long-run aggregate supply curve be affected?
Long-run aggregate supply curveshifts to the right.
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Suppose the money supply has been growing at per year, and nominal GDP, , has been growing at per year. The data are as follows (in billions of dollars):
Calculate the velocity for each year. At what rate is the velocity growing?
Consider two central banks: one with a history of maintaining price stability and low inflation, and the other with a history of high inflation and poor inflation management. All else equal, if the same level of government budget deficit is monetized in both countries, how is inflation likely to behave in each country?
Why is Keynesโs analysis of the speculative demand for money important to his view that velocity will undergo substantial fluctuations and thus cannot be treated as constant?
Why would a central bank be concerned about persistent, long-term budget deficits?
โIf prices and wages are perfectly flexible, then and changes in aggregate demand have a smaller effect on output.โ Is this statement true, false, or uncertain? Explain your answer.
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