Question

Suppose that in a 50-year time period, real output increases by 700% and the money supply...

Suppose that in a 50-year time period, real output increases by 700% and the money
supply increases by 300%. According to the quantity theory, what happens to the price
level?
(a) Decreases by 100%
(b) Decreases by 50%
(c) Stays the same, because velocity adjusts endogenously
(d) Increases by 100%
(e) Increases by 400%

pls explain the reason.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer. (c) stays the same, because velocity adjusts endogenously

Explanation. Quantity theory of money is MV=PQ, where M is money supply, V is velocity, P are prices and Q is real output. M increases by 300%, and Q increases by 700%. Now the sum of increases should be the same on both sides. So no option is given as P decreases by 400%. So only option c is correct, because velocity will adjust and increase by 400% to equalise the growth on both sides of equation.

Please upvote this answer.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that initially the money supply is ​$1 ​trillion, the price level equals 3​, the real...
Suppose that initially the money supply is ​$1 ​trillion, the price level equals 3​, the real GDP is ​$5 trillion in​ base-year dollars, and income velocity of money is 15. Then the money supply increases by ​$100 ​billion, while real GDP and income velocity of money remain unchanged. a. According to the quantity theory of money and prices LOADING...​, calculate the new price level after the increase in money​ supply: nothing.
1. The government of a country increases the growth rate of the money supply from 5...
1. The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. What happens to prices? What happens to nominal interest rates? Why might the government be doing this? 2.List and describe six costs of inflation. /6 3.Explain how an increase in the price level affects the real value of money. /2 4.According to the quantity theory of money, what is the effect of an increase in the...
1. Using the quantity equation, what happens to the price level if the money supply increases...
1. Using the quantity equation, what happens to the price level if the money supply increases by 10%, velocity is constant, and real GDP does not change? 2. Using the quantity equation, what happens to the price level if the money supply increases by 10%, velocity is constant, and real GDP increases by 5%?
1. Suppose the supply of money, measured by M1, is $2.9 trillion, output, measured by real...
1. Suppose the supply of money, measured by M1, is $2.9 trillion, output, measured by real GDP, is $15.8 trillion, and the velocity of money is 7.6. Suppose the supply of money increases to $3.9 trillion but GDP and the velocity of money do not change. What is the percent by which prices change? Provide your answer as a percentage rounded to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer....
Suppose the supply of money, measured by M1, is $3.2 trillion, output, measured by real GDP,...
Suppose the supply of money, measured by M1, is $3.2 trillion, output, measured by real GDP, is $20.2 trillion, and the velocity of money is 6.7. Suppose the supply of money increases to $4.1 trillion but GDP and the velocity of money do not change. What is the percent by which prices change? Provide your answer as a percentage rounded to two decimal places.
Suppose the supply of money, measured by M1, is $2.4 trillion, output, measured by real GDP,...
Suppose the supply of money, measured by M1, is $2.4 trillion, output, measured by real GDP, is $19.9 trillion, and the velocity of money is 7.7. Suppose the supply of money increases to $4.0 trillion but GDP and the velocity of money do not change. What is the percent by which prices change? Provide your answer as a percentage rounded to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.
Assume the money supply is $500, the velocity of money is 8, and the price level...
Assume the money supply is $500, the velocity of money is 8, and the price level is $2. Using the quantity theory of money: a. Determine the level of real output. $. b. Determine the level of nominal output. $. c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent? Nominal output would be $              , and real output would be $                             .
1. Consider an economy with a constant nominal money supply, a constant level of real output...
1. Consider an economy with a constant nominal money supply, a constant level of real output ?=100Y=100, and a constant real interest rate ?=0.10r=0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. a) By what percentage does the equilibrium price level differ from its initial value if output increases to ?=106Y=106(and ?r remains at 0.10)? b) By what percentage does the equilibrium price level differ from its initial value...
Suppose the Fed reduces the money supply by 5 percent. Assume the velocity of money is...
Suppose the Fed reduces the money supply by 5 percent. Assume the velocity of money is constant. (a) What happens to the level of output and the price level in the short run and in the long run? (b) In light of your answer to part (a), what happens to unemployment in the short run and in the long run according to Okuns law? Show your work (d) In what direction does the real interest rate move in the short...
Suppose that the Price level = 120, Supply of Money = $20 billion, and Real GDP...
Suppose that the Price level = 120, Supply of Money = $20 billion, and Real GDP = $4 billion. If the velocity of money stays the same but Real GDP increases by 20%, what will happen to the price level if the supply of money increases by $10 billion? Select one: a. It will increase to 125 b. It will increase to 132 c. It will increase to 144 d. It will increase to 150 e. It will increase to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT