Impact of an increase in price level on the real money supply
Discuss the impact of an increase in price level on the real money supply, equilibrium interest rate, interest-related consumption, investment expenditure, aggregate expenditure, and real level of income.
A change in the real money supply can result either from a change in the nominal money supply through Federal Reserve policy (holding the price level constant) or from a change in the price level (holding the nominal money supply constant). The change in the nominal money supply causes a shift of the aggregate demand curve, whereas a change in the price level causes a movement along the aggregate demand curve. Explain.
Application Q1. Describe how the following statements relate to the AD–AS model:
a. The Fed has bought more than $2 trillion of Treasury and mortgage bonds to stimulate the economy.
b. The above actions by the Fed may cause inflation to rise to levels that most would consider unacceptable.
c. The Fed expected a weaker dollar to help increase exports.
d. Businesses already have ample access to cheap credit and are reluctant to borrow, hire, and invest for other reasons.
DQ3 Chapter 15 P.480-481
Technical Q1. Show the effect of dollar appreciation and depreciation with the euro on the price of U.S. exports and imports by updating Table 15.2, as shown in the updated table.
Technical Q3. Suppose the government of Country A imposes a tariff on the goods and services imported from Country B. Draw two graphs to illustrate the changes in the values of Country A’s currency and Country B’s currency
