Chapter 20: Q 5. (page 546)
Why would a central bank be concerned about persistent, long-term budget deficits?
A central bank would be concerned about persistent, long-term budget deficits as it has the potential to raise inflation expectations.
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“The appreciation of the dollar from 2012 to 2017 had a negative effect on aggregate demand in the United States.” Is this statement true, false, or uncertain? Explain your answer.
What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?
Both the portfolio choice and Keynes’s theories of the demand for money suggest that as the relative expected return on money falls, demand for it will fall. Why does the portfolio choice approach predict that money demand is affected by changes in interest rates? Why did Keynes think that money demand is affected by changes in interest rates?
What evidence is used to assess the stability of the money demand function? What does the evidence suggest about the stability of money demand, and how has this conclusion affected monetary policymaking?
“If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.
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