Question

**1.The money supply in Freedonia is $800 billion. Nominal
GDP is $200billion and real GDP is $300 billion. What are the price
level and velocity in Freedonia?**

**2.The aggregate production function demonstrates the
fact that the marginal product of labor increases at a(n) what
rate?**

**3. In the Four-Graph macroeconomic long-run model (labor
market, aggregate production function, the diagonal line to shift
Y, and AD-AS), what does it say about output and
employment?**

**4. Suppose the economy has only two goods, corn, and
solar calculators. Corn costs $3 per bushel, and solar calculators
cost $10 each. If the price level is 1, and the total amount of
money M is $100, and during one year, we buy 25 bushels of corn and
25 solar calculators, each dollar is spent how many times per year?
Calcualte velocity of the circulation**

Answer #1

1. The quantity equation is

MV = PY

Where, M = money supply

V = Velocity of money

P = Price level

Y = Real GDP

We know, P = Nominal GDP / Real GDP = $200 billion / $300 billion = $0.67

MV = PY

800 * V = 200

V = 200 / 800 = 0.25

Thus, the price level is $0.67 and velocity in Freedonia is 0.25.

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