DUUKIllas People Window Help Unit 4-MACRC × V RI Take Test: Unit x V. D ECON 202

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DUUKIllas People Window Help Unit 4-MACRC × V RI Take Test: Unit x V. D ECON 202 MacD ECON 2021 Secure https://blackboard.towson.edu/webapps/assessmentitakejlaunch.g Question Completion Status: QUESTION 7 When analyzing the economy in the short run, it is reasonable to assume that money velocity stays constant. real GDP stays constant. nominal GDP stays constant. O none of the above is likely to stay constant. QUESTION 8 The Federal Reserve sets a specific target for the federal funds rate. the three-month treasury bill rate. the amount of money supply. the interest rate for the 30-year fixed-rate mortgage. Click Save and Submit to save and submit. Click Save All Answers to save all answers 13

Explanation / Answer

7) The velocity of money is measured by how fast money changes hands per unit of time. It can not be measured directly, it depends on GDP which cannot be constant in the short run.

Nominal GDP=(Quantity of money)*(Velocity of money). In the short run, the Federal Reserve changes the money supply for adjusting the economy. So in the short run nominal GDP cannot be constant.

Real GDP is adjusted for inflation. It takes time to develop economic resources and technology and inflation is not change very frequently. So we can assume real GDP is constant in short run. Therefore the second option is correct.

8) The federal funds rate is one of the traditional tools of monetary policy. To ensure that banks maintain a safety margin on their lending activities FED set a target of federal funds rate. Therefore the option a is correct.

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