Question

Assume the money supply is $500, the velocity of money is 8, and the price level...

Assume the money supply is $500, the velocity of money is 8, and the price level is $2. Using the quantity theory of money:

a. Determine the level of real output. $.

b. Determine the level of nominal output. $.

c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent?

Nominal output would be $              , and real output would be $                             .

Homework Answers

Answer #1

Quantity theory of money equation

MV=PY

M is money supply

P is price

V is velocity of money

Y is real GDP

a.

the money supply is $500, the velocity of money is 8, and the price level is $2.

MV=PY

500*8=2*Y

Y=4000/2

=$2000

b.

Nominal GDP = P*Y

=2*2000

=$4,000

c.

Assuming velocity remains constant, what will happen if the money supply rises 20 percent

Increase in the money supply= 20% of 500

=(20*500)/100

=100

New money supply = 500+100

=600

MV=PY

600*8=2*Y

Y=4800/2

=$2400

Nominal output would be =P*Y

=2400*2

=$4800

and real output would be $2,400 .

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume the money supply is $600, the velocity of money is 6, and the price level...
Assume the money supply is $600, the velocity of money is 6, and the price level is $3. Using the quantity theory of money: a. Determine the level of real output. b. Determine the level of nominal output. c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent? Nominal output would be $?? and real output would be $?? d. If the government established price controls and also raised the money supply 5 percent, what...
Assume the money supply is $600, the velocity of money is 6, and the price level...
Assume the money supply is $600, the velocity of money is 6, and the price level is $3. Using the quantity theory of money: a. Determine the level of real output. b. Determine the level of nominal output. c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent? d. If the government established price controls and also raised the money supply 5 percent, what would happen? Instructions: You may select more than one answer. Click...
1. The government of a country increases the growth rate of the money supply from 5...
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...
The quantity theory of money we discussed in class assumes that the ratio of money to...
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 that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real...
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 600 billion, nominal GDP is 15000 billion, and real...
suppose that this year's money supply is 600 billion, nominal GDP is 15000 billion, and real GDP is 7500 billion a.what is the price level? what is the velocity of money b. Suppose that velocity is constant and the economy's output of goods and services rises by 5% each year/ what will happen to nominal GDP and the price level next year if the fed keeps the money supply constant?
1. Using the quantity equation, what happens to the price level if the money supply increases...
1. Using the quantity equation, what happens to the price level if the money supply increases by 10%, velocity is constant, and real GDP does not change? 2. Using the quantity equation, what happens to the price level if the money supply increases by 10%, velocity is constant, and real GDP increases by 5%?
Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real...
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 $400 billion, nominal GDP is $10trillion, and real GDP...
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...
1. Consider an economy with a constant nominal money supply, a constant level of real output...
1. Consider an economy with a constant nominal money supply, a constant level of real output ?=100Y=100, and a constant real interest rate ?=0.10r=0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. a) By what percentage does the equilibrium price level differ from its initial value if output increases to ?=106Y=106(and ?r remains at 0.10)? b) By what percentage does the equilibrium price level differ from its initial value...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT