Question

**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.

True

False

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.)

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Suppose that this year's money supply is $500 billion, nominal
GDP is $10 trillion, and real GDP is $5 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
(stay the same, rise by 3%, or fall...

Suppose that this year's money supply is $500 billion, nominal
GDP is $10 trillion, and real GDP is $5 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 4 percent each year. Use this
information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will
_______ (rise by 4%, stay the same,...

Suppose that this year’s money supply is $400 billion, nominal
GDP is $10trillion, and real GDP is $4 trillion.
1.What is the price level? What is the velocity of money?
2. Suppose that velocity is constant and the economy’s output of
goods and services rises by4% each year. What will happen to
nominal GDP and the price level next year if the Fed keeps the
money supply constant?
3.What money supply should he Fed set next year if it wants...

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.

The quantity theory of money we discussed in class assumes that
the ratio of money to GDP is constant. This can be equivalently
expressed by the Fisher equation:
M ×V = P × Q
Where:
• M represents the money supply.
• V represents the velocity of money. which is the
frequency at which the average same unit of currency is used to
purchase newly domestically-produced goods and services within a
given time period. In other words, it is the...

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.

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....

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...

ECO - 252 Macroeconomics
7. Real output = $800 billion
Nominal output = $2,400 billion
The money supply = $200 billion
The reserve ratio = 10%
a. Find the velocity
of money (V) and the price level (P) consistent with the quantity
equation.
b. Assume that banks
loan out all excess reserves, people hold no currency, V is
constant and real output stays at $800 billion, but the Fed buys
$20 billion worth of government bonds from the public.
What...

1. Use the quantity theory of money equation to address the
following questions. Use the following as initial values: M = $4
trillion, V = 3, P = 1, Y = $12 trillion. (2 points) MV = PY a. All
other things being equal, by how much will nominal GDP expand if
the central bank increases the money supply to $4.2 trillion and
velocity remains constant? Show your work and explain your answer.
b. Reset your values to the initial...

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