Question

# What is the key endogenous variable in the quantity theory? Explain the effect on this key...

What is the key endogenous variable in the quantity theory? Explain the effect on this key variable of the following changes:

A. The money supply is doubled

B. The velocity of money increases by 10%

C. Real GDP rises by 2%

D. The money supply increases by 3% while real GDP rises by 3% at the same time

Price level is the endogenous variable in the quantity theory

A) The money supply is doubled.

MV = PQ

Where M= money supple, V = the velocity of money, P = the price level, and Q = real GDP

Price Level will also double

B) The velocity of money increases by 10%.

Price Level will also increases by 10%.

c)Real GDP rises by 2%

new Price level = MV/1.02Q

Price Level = 98%*Old Price Level

Price Level will decrease by 2%

D) The money supply increases by 3% while real GDP rises by 3% at the same time.

new Price level = 1.03*MV/1.03Q = MV/Q

No Effect
Thank you....

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