4. Assume that money velocity is constant. a. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the short run? b. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the long run?

4. Assume that money velocity is constant. a. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the short run? b. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the long run?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 1PA

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Hi I need the answer key to this problem thanks

4. Assume that money velocity is constant.
a. Suppose the money supply increases by 12%. What do you expect to happen to output and
the price level in the short run?
b. Suppose the money supply increases by 12%. What do you expect to happen to output and
the price level in the long run?

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4. Assume that money velocity is constant. a. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the short run? b. Suppose the money supply increases by 12%. What do you expect to happen to output and the price level in the long run?
4 a b
Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
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If money supply increases 10%, and we assume a constant money velocity: O We should have a price increase of 10% in the short-run, and an output increase of 10% in the long-run. O We don't have enough data to answer. O Price and output increase by 10% in the long-run. O Price and output increase by 5% in the long-run. O We should have an output increase of 10% in the short-run, and a price increase of 10% in the long-run.
Assume, in the 3rd quarter of 2018 in the U.S., the velocity of money was 3.08 and the M2 money supply was $1,050 million. The average prices in the economy was $1.44. Based on this, what was the real GDP of the U.S. in the 3rd quarter of 2018. O a. $2,750 million O b.$1,250 millon Oc. $2,000 million O d. 52.250 million
2
Calculate what happens to nominal GDP if velocityremains constant at 4 and the money supply increasesfrom $250 billion to $375 billion
Only D please
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With a constant rate of inflation and an increasing money supply, interest rates can remain stable because... a. The rising price level is increasing the demand for money, offsetting the impact of the rising money supply. O b. The declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise. Oc. The rising price level is decreasing the demand for money which is pushing interest rates up. O'd. The declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise. O e. The money transmission mechanism does not apply in a situation of sustained inflation.