Assume there is only one good in the economy, corn. The economy has enough labor, capital, and land to produce 1,800 bushels of corn. V is constant. In 2023, money supply was $3,600 and the price of corn was $8/bushel. For 2024, the Fed increases money supply, MS by 10%. The inflation is

Question

Assume there is only one good in the economy, corn. The economy has enough labor, capital, and land to produce 1,800 bushels of corn. V is constant.  In 2023, money supply was $3,600 and the price of corn was $8/bushel. For 2024, the Fed increases money supply, MS by 10%.  The inflation is

BlackTom AI · Accepted Answer

We start by understanding the setup: there is only one good (corn), and money supply (M) grows by 10% from 2023 to 2024. The velocity of money (V) is constant and total output (Y) is constrained by available resources to 1,800 bushels. In 2023, M = 3,600 and the price of corn P = 8, so nominal GDP P·Y = 8 × 1,800 = 14,400. With V constant, the quantity theory of money MV = PY implies that if M rises by 10% and V stays the same, then PY must also rise by 10% in 2024.

- Since Y is fixed at 1,800 bushels in the short run by resource constraints, the increase must come from a higher price level P.

- New money supply M' = 3,600 × 1.10 = 3,960. With V constant and Y unchanged, PY must be 10% higher than before: PY' = 14,400 × 1.10 = 15,840.

- Solving for P' given Y = 1,800: P' = PY' / Y = 15,840 / 1,800 = 8.8.

Now evaluate the answer choices:
- Option 1: 10. This corresponds to a 10% inflation rate, which matches the 10% rise in the price level calculated above. It is consistent with the quantity theory given the assumptions.
- Option 2: 8.80. This is the calculated new price level, not the inflation rate itself. If the base price was 8, the inflation rate would be (8.8 − 8) / 8 = 0.10 = 10%, not 8.8%.
- Option 3: 1.5. This would imply a very small inflation rate of 1.5%, which does not align with the 10% increase in money supply and the constant V with fixed output.
- Option 4: 8.12. This would imply a price level close to the original, indicating an inflation of about 1.5% if taken as the new price; but the actual calculation shows the price must rise to 8.8, not 8.12, under the given assumptions.

In summary, under the quantity theory with V constant and output fixed by capacity, a 10% money-supply increase translates into a 10% rise in the price level, i.e., inflation of 10%. The other options either confuse the new price level with the inflation rate or rely on incorrect implications about how P would adjust when M expands and Y is fixed.

类似问题

If the real GDP per capita growth is 2.1 percent per year, the population growth rate is 3.2 percent per year, the money growth rate is 4.7 percent per year, and velocity is constant then, according to the quantity theory of money, the inflation rate is ________ percent in the long run.

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then[Fill in the blank]

If the growth rate of real GDP is 3.5 percent per year, the money supply grows at a rate of 7 percent, and the velocity is constant, using the quantity theory, the inflation rate is ______ percent. Round your answer to the nearest hundredth of a percent.

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单