Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 5, Problem 8PA
To determine
The deflation.
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In a new nation that wants to follow the Friedman Rule, the real interest rate is 5% per year, real GDP grows at 1% per year, and the capital share of GDP is 30%. If the country wants to follow the Friedman rule, what annual inflation rate should the central bank aim for on average?
This is commonly described as "too much money chasing too few goods." More accurately, it should be described as involving "too much money spent chasing too few goods," since only money that is spent on goods and services can cause inflation. It is the opposite of cost-push inflation. Explain how increase in government spending and increase wages for labor will lead to inflation in Ghana [HINT SUPPORT YOUR EXPLANATIONS WITH APPROPRIATE DIAGRAMS] ?
Q1. A) Supposing in 2017 Nigeria and Ghana have the following indicators:
Indicators
Nigeria
Ghana
GDP per capita
$1,241
$1,840
Life expectancy
65.7 years 69 years
Adult literacy
53.5%
67.5%
Gross enrolment ratio 52.1%
65.3%
Calculate the traditional HDI for the two countries and interpret your results.
B) Discuss the major causes as well as the consequences of inflation in Nigeria.
How can inflation be controlled?
Q2. Differentiate clearly between poverty and income inequality, and explain the
main causes of income inequality in Nigeria. How can we narrow income
inequality in our country?
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- Suppose the economy of Macroland is described by the following:C = 200 + 0.8 DI (DI = disposable income)I = 300 + 0.2Y − 50r (Y = GDP)(r, the interest rate, is measured in percentage points. For example, a 9 percent interest rate is r = 9).For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate atr = 5G = 750T = 0.25YX = 200M = 150 + 0.2YHint: DI = Y − T From Table 36-1, find the trade deficit or surplus. a. 75 surplus b. 475 surplus c. 475 deficit d. 75 deficitarrow_forwardConsider two countries, Hitech and Lotech . In Hitech new arrangements for making payments, such as credit cards and ATMs, have been enthusiastically adopted by the population, thereby reducing the proportion of income that is held as real money balances. Over this period no such changes occurred in Lotech . If the rate of money growth and the growth rate of real GDP were the same in Hitech and Lotech over this period, then how would the rate of inflation differ between the two countries? Carefully explain your answer.arrow_forwardThe Federal Reserve, the central bank of the United States, has an inflation target of 0.3% per month. According to the Quantity Theory of Money, by how much must the Federal Reserve grow the money stock in order to hit its inflation target? The Federal Reserve must decrease the money stock by 0.3% per year. The Federal Reserve must increase the money sock by 0.3% per year. The Federal Reserve must decrease the money stock by 0.3% per month. The Federal Reserve must increase the money stock by 0.3% per month.arrow_forward
- how far can monetary measures control inflationarrow_forwardAccording to the Fisher effect theory, the difference between the nominal and real interest rates in each country should reflect the inflation rate differential. Select one: True Falsearrow_forwardTurkey’s annual inflation rate soared to 36%, the highest since September 2002. According to data released by the Turkish Statistical Institute, December saw the year’s biggest increase in inflation, with consumer prices up almost 14% compared to the previous month. Despite a plummeting currency and runaway inflation, the country's President Recep Tayyip Erdogan has pursued an unorthodox economic policy in his belief that high interest rates cause inflation instead of helping combat it. He continues to insist on slashing interest rates.In conventional policy-making, if facing rising inflation then a country's central bank needs to increase interest rates to drive price increases down again. The higher the inflation, the higher rates need to go to combat it. Erdogan has often sought to justify his decision by quoting verses from the Koran which strictly forbids interest. Erdogan has once described interest rates as the "mother and father of all evil." "I cannot stand by those who defend…arrow_forward
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