Use the following to answer question 33: Figure: Changes in the Money Supply Int

Question

Use the following to answer question 33: Figure: Changes in the Money Supply Interest rate. Q O Quantity of money in the Money Supply) Refer to the information in the figure Changes bonds in tpply of money shifts from Si to Sh, the Federal Reserve 33. (Figure: Changes in the Money Supply. If the supply must have A) soldbonds in the open market. B) bought C) issued new D) borrowed Use the following to answer question 34: Table 10-3 The table below reports nominal and real GDP for the U.S. from 1929 to 1932 Year Nominal Real 1929 1930 1931 1932 GDP GDP 103.6 977 91.2 892.8 76.5 834.9 58.7 725.8 34. Refer to Table 10-3. What is the GDP deflator for 1931 and the inflation rate for the period 1930-1931? A) The GDP deflator is 9.16, and the inflation rate is-11.5% B) The GDP deflator is 9.16, and the inflation rate is-10.3% C) The GDP deflator is 1091.37, and the inflation rate is 10.3% D) The GDP deflator is 1091.37, and the inflation rate is 11.5%

Explanation / Answer

33.

From theory we knew that, when the Fed buys bonds in the ope market, there will be an increase in money supply. Here in this case, from the figure, we can see that money supply increases as supply of money curve shifts to the right.

So, the correct option is:

B) bought.

34.

10.

The formula for GDP deflator is

GDP Deflator = (Nominal GDP / Real GDP) * 100

GDP deflator for 1931 = (76.5 / 834.9) * 100 = 9.16

Now, to calculate the inflation rate for 1930 - 31, we need to calculate the GDP deflator for 1930.

GDP deflator for 1930 = (91.2 / 892.8) * 100 = 10.22

Now, the inflation rate for 1930-31 = [(9.16 - 10.22) / 10.22] * 100 = - 10.3%

So, the correct option is:

B) The GDP Deflator is 9.16 and the inflation rate is - 10.3%.

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