Question

1AFrom a Keynesian viewpoint

A. the phillip curve is vertical in the long run

B. the philip curve slopes down in the short run

c. the solution to a recession is expansionary fiscal policy

d . if the aggregate demand curve shift to the left there is no impact on the philip curve

1BAll ofther things being equal, by how much will nominoal gdp expand if the central bank increases the money supply by 691 billion dollars and the velocity of money is 7?

1C. what is the percentage change of nominal gdp if the central banks changes the money supply from 116$ to $189 and due to this change the velocity of money changes from 11-7

Answer 1

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Solution 1A

According to the Keynesian economist, the solution of the recession is expansionary fiscal policy.

an expansionary fiscal policy such as tax cut to increase consumption and increase in the government expenditure that will increase the aggregate demand and Shift the AD curve to the right.

Solution 1B

According to the Quantity Theory of Money,

MV =PY

M = money supply

V = velocity of money

PY = Nominal GDP

PY = 691*7 = 4837

nominal GDP = 4837

Solution 1C

According to the Quantity Theory of Money,

MV =PY

M = money supply

V = velocity of money

PY = Nominal GDP

when money supply = 116 and velocity = 11

PY = 116*11 = 1276

when money supply = 189 and velocity = 7

PY = 189*7 = 1323

the change in the nominal GDP = 1323-1276 = 47

Percentage change in the nominal GDP = (47/1276)*100 = 3.68%