If the demand for money depends positively on real income and depends inversely on the nominal interest rate, what would happen to the price level today if the central bank announces (and people believe) that it will decrease the money growth rate in the future, but it does not change the money supply today?© BrainMass Inc. brainmass.com October 25, 2018, 8:06 am ad1c9bdddf
In the future the money supply growth rate will decrease, so the price of money, i.e. the nominal interest rate, will increase. The demand for money varies ...
This solution gives a 1-paragraph explanation of what would happen to the price level today if the central bank announced that it would decrease the money supply in the future.
Federal Reserve's Relationship to the Money Supply
1. Describe three ways in which the Federal Reserve can change the money supply.
2. If the Federal Reserve is going to adjust all of these tools during an economy that is growing too quickly, what changes would they make?
3. If the Federal Reserve is going to adjust all of these tools during an economic recession, what changes would they make?
4. What changes, if any, would you make to these tools at the next meeting of the Federal Reserve? Explain why and the benefits/drawbacks of this strategy.View Full Posting Details