According to the quantity theory of money, deflation will occur if the
A) money supply is more than real GDP.
B) money supply is less than real GDP.
C) money supply grows at a slower rate than real GDP.
D) money supply grows at a faster rate than real GDP.
C
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Suppose the government has a $440 billion budget deficit. If the government borrows $330 billion to finance this deficit and finances the rest by printing money, the amount of new money created will be
A) $90 billion. B) $110 billion. C) $440 billion. D) $770 billion.
For this question, use the Keynesian IS—LM model with flexible exchange rates. Eastland's main trading partner is Westland. Suppose Westland undertakes an expansionary monetary policy
(a) What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run, assuming no change in Eastland's policies? (b) What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the long run, assuming no change in Eastland's policies? (c) What is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run and in the long run?