Answered: If velocity is constant at 10 and the…

If velocity is constant at 10 and the money supply decreases from $1,800 billion to $1,400 billion, what happens to nominal GDP?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter6: Managing Cash Flow

Section6.6: Conversion Period Ratios

Problem 3CC

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

If velocity is constant at 10 and the money
supply decreases from $1,800 billion to
$1,400 billion, what happens to nominal
GDP?

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