Answer to Question #219910 in Macroeconomics for Collins

Question

Consider the effects of a permanent decrease in the rate of nominal money growth
Suppose that the economy can be described by the following three equations:

Answer 1

ut- ut-1 = -0.41gyt - 3%2 Okun's law

pt - pt-1 = -1ut - 5%2 Phillips curve

gyt = gmt - pt Aggregate demand

The values are consistent with the statement. Suppose the money growth is permanently reduced from 13% to 3%, starting in year t. The values of unemployment and inflation rate are in the medium run. On the other hand, inflation is a monetary phenomenon and it's an economic terminology describing the sustained increase in prices of goods and services within a given duration. It automatically erodes the purchasing power, encourages spending and investing, and lowers the cost of borrowing thus reducing unemployment.

As per aggregate demand, the decrease in money supply will lead to a decrease in consumer spending, whereas Okun's law looks at the statistical relationship between a country's employment and economic growth rate. Finally, Philip's curve shows the correlation between unemployment and inflation. In conclusion, the three aspects look interchangeably at the thematic of unemployment, money supply, and levels of inflation amidst the economy.