. Based on your knowledge of the Quantity Theory of Money and the Equation of Exchange, answer the following questions. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a boom in the business cycle that increases the real GDP increases by 3.5%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the velocity of money declines by 2%? Explain briefly. Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a recession in which the real GDP declines by 3%? Explain briefly. Assume the money supply is $1,200 billion, the velocity of circulation is 8, and the price level is $6. What is the level of real output and nominal output? Assume the money supply is $1,200 billion, the price level is $6, and velocity remains constant. What will happen if the money supply rises by 10%?

Quantity Theory of Money asserts that the quantity of money in circulation directly influences the…

Answered: Based on your knowledge of the Quantity…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 16CQ

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. Based on your knowledge of the Quantity Theory of Money and the Equation of Exchange, answer the following questions.

Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a boom in the business cycle that increases the real GDP increases by 3.5%? Explain briefly.

Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the velocity of money declines by 2%? Explain briefly.

Assume the Bank of Canada has been instructed by the government to maintain a constant price level in the economy. What should it do if the economy experiences a recession in which the real GDP declines by 3%? Explain briefly.

Assume the money supply is $1,200 billion, the velocity of circulation is 8, and the price level is $6. What is the level of real output and nominal output?

Assume the money supply is $1,200 billion, the price level is $6, and velocity remains constant. What will happen if the money supply rises by 10%?

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