Question

4. Velocity and the quantity equation Consider a simple economy that produces only pies. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2014, the money supply was $240, the price of a pie was $7.20, and the economy produced 500 pies. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Year Quantity of Money Velocity of Money Price Level Quantity of Output Nominal GDP (Dollars) (Dollars) (Pies) (Dollars) 2014 240 7.20 500 2015 252 15 500 The money supply grew at a rate of from 2014 to 2015. Since pie output did not change from 2014 to 2015 and the velocity of money , the change in the money supply was reflected in changes in the price level. The inflation rate from 2014 to 2015 was .

Answer 1

Answer:-

Answer :

Year	Quantityof money($)	Velocity of money	Price level($)	Quantity of output($)	Nominal GDP($)
2014	240	15	7.20	500	(b) 3600
2015	252	15	(a) 7.56	500	(c) 3780

WORKING OF THE TABLE :

(b) Nominal GDP =Price *Quantity

Nominal GDP=7.20*500

Nominal GDP= 3600

(c) AS we know there is formula to calculate nominal GDP

Nominal GDP= Money supply * velocity

Nominal GDP=252*15

Nominal GDP= 3780

(a) Price level *Quantity =Nominal GDP

Price level= Nominal GDP/ Quantity

Price level= 3780/500

Price= $7.56

The money supply grew at a rate of 5% from 2014 to 2015. Since pie output did not change from 2014 to 2015 and velocity of money remains same, the change in the money supply was reflected increase ( inflation) in an economy.in changes in the price level. The inflation rate from 2014 to 2015 is 5%.