QUESTION

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The data below are from the economies of Banton and Menna (a) Calculate each of the following for Year 2. Show your work. (i) Real GDP per capita for Banton (ii) Real GDP per capita for Menna (b) If Banton and Menna have the same velocity of money in Year 2, which economy must have the higher money supply in Year 2? Explain. (c) Calculate each of the following in Year 2. Show your work. (i) The inflation rate in Banton (ii) The inflation rate in Menna (d) Based on your answer to part (c), if the nominal interest rate is the same for both economies in Year 2, which economy experiences the higher real interest rate in Year 2? Explain. (e) Assume that in Year 1 Menna is operating inside its production possibilities curve and that Menna's production possibilities curve remains unchanged from Year 1 to Year 2. As a result of the change in real GDP from Year 1 to Year 2, does Menna's economy move closer to or farther away from its production possibilities curve? Explain using numbers for real GDP and state what will happen to cyclical unemployment in the short run.

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