Questions:
Complete all questions listed below. Clearly label your answers and site all references
1.What impact will an unanticipated increase in the money supply have on the real interest rate, real output, and employment in the short run? How will expansionary monetary policy affect these factors in the long run? Explain.
2.How rapidly has the money supply (M1) grown during the past twelve months? State the rate of growth (use https://www.federalreserve.gov/releases/h6/) and the most recent release, use the seasonally adjusted figures. Calculate the rate of growth across the year by taking the (new amount of M1- old amount of M1)/old amount of M1). Given the state of the economy, should monetary authorities increase or decrease the growth rate of money? Explain why.
3.Is stability in the general level of prices through time important? Why or why not? Should price stability be the goal of monetary policy? Explain your responses.
4.Compare and contrast the impact of an unexpected shift to a more expansionary monetary policy under rational and adaptive expectations. Are the implications of the two theories different in the short run? Are the long-run implications different? Explain.
Some helpful hints (I hope they are) for problem set assignment (#5, Chapters 14 and 15 from the Gwartney textbook). In Question #2, after going to the Federal Reserve website as indicated/directed in the question and clicking on the April 18, 2013 data release, go down to the bottom of the first table, and quote the seasonally adjusted growth rates for the past 12 months for M1. Then, calculate the growth rate for this year (2013) using the formula given in the question using the January 2013 and March 2013 M1 seasonally adjusted money stock measure for billions of dollars (even though the March 2013 figure is preliminary).
Also, for Question #4, be sure to read about the adaptive and rational expectations, especially their commalities and differences, and then address them in your response/answer.