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Question 1: (20 points) Suppose the current money supply (M) in Country $ \mathrm{X} $ is $ \$ 500 $ billion, the nominal GDP is $ \$ 10 $ trillion, and the real GDP $ (\mathrm{Y}) $ is $ \$ 5 $ trillion. Suppose that velocity is constant and the economy 's output of goods and services rises by 5 percent each year. a. Calculate the current price level $ (\mathrm{P}) $. ( $ 5 \mathrm{pts} $ ) b. Caloulate the velocity of money $ (\mathrm{V} $ ) in Country X. ( 5 pts) c. If the central bank increases the money supply to $ \$ 750 $ billion while the real GDP remains constant, what will the new price level $ (\mathrm{P}) $ be? ( 5 pts) d. Using a diagram, explain the economic theory behind the change in the price level when the money supply is increased, assuming the real GDP is constant. ( 5 pts)

          Question 1: (20 points)
Suppose the current money supply (M) in Country \( \mathrm{X} \) is \( \$ 500 \) billion, the nominal GDP is \( \$ 10 \) trillion, and the real GDP \( (\mathrm{Y}) \) is \( \$ 5 \) trillion. Suppose that velocity is constant and the economy 's output of goods and services rises by 5 percent each year.
a. Calculate the current price level \( (\mathrm{P}) \). ( \( 5 \mathrm{pts} \) )
b. Caloulate the velocity of money \( (\mathrm{V} \) ) in Country X. ( 5 pts)
c. If the central bank increases the money supply to \( \$ 750 \) billion while the real GDP remains constant, what will the new price level \( (\mathrm{P}) \) be? ( 5 pts)
d. Using a diagram, explain the economic theory behind the change in the price level when the money supply is increased, assuming the real GDP is constant. ( 5 pts)

Question 1: (20 points)
Suppose the current money supply (M) in Country X is $ 500 billion, the nominal GDP is $ 10 trillion, and the real GDP (Y) is $ 5 trillion. Suppose that velocity is constant and the economy 's output of goods and services rises by 5 percent each year.
a. Calculate the current price level (P). ( 5 pts )
b. Caloulate the velocity of money (V ) in Country X. ( 5 pts)
c. If the central bank increases the money supply to $ 750 billion while the real GDP remains constant, what will the new price level (P) be? ( 5 pts)
d. Using a diagram, explain the economic theory behind the change in the price level when the money supply is increased, assuming the real GDP is constant. ( 5 pts)

Added by Molly J.

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