1. Problems and Applications Q1
Suppose that this year's money supply is $400 billion, nominal GDP is $12 trillion, and real GDP is $4 trillion.
The price level is
, and the velocity of money is
Suppose that velocity is constant and the economy's output of goods and services rises by 3 percent each year. Use this information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will , and nominal GDP will .
True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 3% next year.
If the Fed wants an inflation rate of 11 percent instead, it should the money supply by
. (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
Please ask your query if any in comment.
PLEASE RATE THUMBS UP ??
Please don't dislike the answer, feel free to ask your query if any in comment.
Get Answers For Free
Most questions answered within 1 hours.