(a) Explain the meaning of velocity of money (b) Suppose the money supply M has been growing at 10% per year, and nominal GDP, PY, has been growing at 20% per year. The data are as follows (in billions of dollars): Year 2018 2019 2020 M 100 110 121 PY 1000 1200 1440 Calculate the velocity for each year. At what rate is the velocity growing? (c) Calculate what happens to nominal GDP if velocity remains constant at 5 and the money supply increases from $200 billion to $300 billion.

(a) Explain the meaning of velocity of money (b) Suppose the money supply M has been growing at 10% per year, and nominal GDP, PY, has been growing at 20% per year. The data are as follows (in billions of dollars): Year 2018 2019 2020 M 100 110 121 PY 1000 1200 1440 Calculate the velocity for each year. At what rate is the velocity growing? (c) Calculate what happens to nominal GDP if velocity remains constant at 5 and the money supply increases from $200 billion to $300 billion.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter28: Monetary Policy And Bank Regulation

Section: Chapter Questions

Problem 9SCQ: Why might the velocity of money change unexpectedly?

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Why might the velocity of money change unexpectedly?
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