Question

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, fall by 4%) , and nominal GDP will _______ (rise by 8%, fall by 4%, stay the same, rise by 4%, fall by 8%).

True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 4% next year.

True

False

If the Fed wants an inflation rate of 9 percent instead, it should _______ (increase, decrease) 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.)

Answer #1

M x V = P x Y where (P x Y) = Nominal GDP

% Change in M + % Change in V = % Change in P (Inflation) + % Change in Y

(1)

Price level = Nominal GDP / Real GDP = 10 trillion / 5 trillion
= **2**

V = (P x Y) / M = 10 trillion / 0.5 trillion =
**20**

(2)

0% + 0% = % Change in P + 4%

% Change in P = - 4%

Price level will **fall by 4%.**

Nominal GDP **stay the same.**

(3) **True**

% Change in M + 0% = 0% + 4% = 4%

(4)

% Change in M + 0% = 9% + 4% = 13%

It should **increase** money supply by
**13%** (assuming Y increases by 4% as mentioned in
previous part).

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...

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...

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.

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....

Suppose that initially the money supply is $1 trillion, the
price level equals 3, the real GDP is $5 trillion in base-year
dollars, and income velocity of money is 15. Then the money supply
increases by $100 billion, while real GDP and income velocity of
money remain unchanged. a. According to the quantity theory of
money and prices LOADING..., calculate the new price level after
the increase in money supply: nothing.

Topic: Monetary Policy
Suppose that an economy is characterized by M = $2 trillion; V =
2.5; P = 1.0;
You are required to answer the following Questions:
1) What is the real value of output (Q)?
Now assume that the Fed increases the money supply by 10 percent
and velocity remains unchanged.
2) If the price level remains constant, by how much will real
output increase?
3) If, instead, real output is fixed at the natural level of
unemployment,...

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...

Question 11 pts
If the velocity of money is 6 when nominal GDP is $12 trillion,
what will be the velocity of money when nominal GDP is 24 trillion
according to the Classical model?
12
3
6
18
Flag this Question
Question 21 pts
Fiscal policies cause perfect crowding out according to
Classical economists.
True
False

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 19 minutes ago

asked 19 minutes ago

asked 25 minutes ago

asked 33 minutes ago

asked 36 minutes ago

asked 37 minutes ago

asked 37 minutes ago

asked 39 minutes ago

asked 40 minutes ago

asked 40 minutes ago

asked 43 minutes ago

asked 54 minutes ago