Suppose that this year's money supply is 400 billion, nominal GDP is12 trillion, and real GDP is

First, we can calculate the price level and the velocity of money. The price level is nominal GD

Question

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 5 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 GDP will . True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 5% next year. True False If the Fed wants an inflation rate of 11 percent instead, it should 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).)

          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 5 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 GDP will ____ .

True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 5% next year.

True

False

If the Fed wants an inflation rate of 11 percent instead, it should ____ 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).)

Suppose that this year's money supply is 400 billion, nominal GDP is12 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 5 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 GDP will .

True or False: If the Fed wants to keep the price level stable instead, it should increase the money supply by 5% next year.

True

False

If the Fed wants an inflation rate of 11 percent instead, it should 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).)

Added by Ian M.

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