Font YU H-3 YU H-4 YU H-5 YU Heade. YU O List ab Replace Paragraph A Select Styles 1. Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a constant potential of $4,000. Suppose the money supply is $1,000 in the first year, $1,100 in the second year, $1,200 in the third year, and $1,300 in the fourth Editing year. a. Using the equation of exchange, compute the price level in each year. Answer: M*V=P*Y P = M*V/Y FIRST YEAR P1 = 1000*2/4000-2000/4000-0.5 SECOND YEAR P2 = 1100*2/4000-2200/4000-0.55 THIRD YEAR P3 1200*2/4000-2400/4000-0.6 FOURTH YEAR P4 = 1300*2/4000-2600/4000-0.65 b. Compute the inflation rate for each year. Answer: As the price level changes c. If the central bank wanted to keep inflation at 10% each year, what money supply should it have targeted in each year? Answer: 100% 1022 AM English (Canada) AE- ENG 586 words 2020-03-18 12 3-
Font YU H-3 YU H-4 YU H-5 YU Heade. YU O List ab Replace Paragraph A Select Styles 1. Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a constant potential of $4,000. Suppose the money supply is $1,000 in the first year, $1,100 in the second year, $1,200 in the third year, and $1,300 in the fourth Editing year. a. Using the equation of exchange, compute the price level in each year. Answer: M*V=P*Y P = M*V/Y FIRST YEAR P1 = 1000*2/4000-2000/4000-0.5 SECOND YEAR P2 = 1100*2/4000-2200/4000-0.55 THIRD YEAR P3 1200*2/4000-2400/4000-0.6 FOURTH YEAR P4 = 1300*2/4000-2600/4000-0.65 b. Compute the inflation rate for each year. Answer: As the price level changes c. If the central bank wanted to keep inflation at 10% each year, what money supply should it have targeted in each year? Answer: 100% 1022 AM English (Canada) AE- ENG 586 words 2020-03-18 12 3-
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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b and c part

Transcribed Image Text:Font
YU H-3
YU H-4
YU H-5
YU Heade. YU O List
ab
Replace
Paragraph
A Select
Styles
1. Assume a hypothetical economy in which the velocity is constant at 2 and real GDP is always at a
constant potential of $4,000. Suppose the money supply is $1,000 in the first year, $1,100 in the second
year, $1,200 in the third year, and $1,300 in the fourth
Editing
year.
a. Using the equation of exchange, compute the price level in each year.
Answer: M*V=P*Y
P = M*V/Y
FIRST YEAR
P1 = 1000*2/4000-2000/4000-0.5
SECOND YEAR
P2 = 1100*2/4000-2200/4000-0.55
THIRD YEAR
P3 1200*2/4000-2400/4000-0.6
FOURTH YEAR
P4 = 1300*2/4000-2600/4000-0.65
b. Compute the inflation rate for each year.
Answer: As the price level changes
c. If the central bank wanted to keep inflation at 10% each year, what money supply should it have
targeted in each year?
Answer:
100%
1022 AM
English (Canada)
AE- ENG
586 words
2020-03-18
12
3-
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