4. Velocity and the quantity equation Consider a simple economy that produces only air fryers. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2021, the money supply was $400, the price of a air fryer was $7.50, and the economy produced 800 air fryers. Fill in the missing values in the following table, selecting the answers closest to the values you calculate. Quantity of Money (Dollars) Price Level (Dollars) Quantity of Output (Air fryers) Nominal GDP (Dollars) 400 7.50 800 408 800 Year 2021 2022 Velocity of Money The money supply grew at a rate of money 2021 to 2022 was 15 from 2021 to 2022. Since air fryer output did not change from 2021 to 2022 and the velocity of , the change in the money supply was reflected, in changes in the price level. The inflation rate from
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
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