All things equal, by how much will nominal GDP expand if the central bank increases the money supply by $200 billion, and the velocity of money is 4? Show your work.
All things equal, by how much will nominal
Velocity of money can be defined as the speed with which the money supply is being turned over. Velocity is usually stable and stability of velocity signifies that inflation is the result of increase in money supply.
Nominal GDP is calculated by multiplying current year prices of goods and services with current year quantities.
The quantity theory of money shows the changes in price and output due to change in money supply, keeping the velocity of money as constant.
As per the quantity theory of money
M × V = P × Q
Where V is the Velocity of Money
M is the Money Supply
P×Q is the Nominal GDP
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