If velocity were constant at 2 while M2 rose from $5 trillion to $7 trillion in a single year, what would happen to nominal GDP?Instructions: Enter your responses rounded to two decimal places.Nominal GDP would rise by [percent.If real GDP rose 3 percent, what would be the level of inflation?Inflation would equal [percent.

A measure of an economy's overall output of goods and services generated over a certain time period…

Answered: If velocity were constant at 2 while M2…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The velocity of circulation is constant, real GDP is growing at 2 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 6 percent a year. Calculate the inflation rate, the growth rate of money, and the growth rate of nominal GDP. The inflation rate is percent a year.
The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = PxQ. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (Mx V) = = You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = = Percentage Change in (PxQ) %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate of 5% per year, you can use this…
Consider a simple economy that produces only loaves of bread. The table contains information on the economy's output, money supply, velocity, and price level. For example, in 2009, the money supply was $200, the price of a loaf of bread was $5, and the economy produced 400 loaves of bread. Use the information in the table and your previous answers. The money supply grew at a rate of % from 2009 to 2010 and the inflation rate (percentage change in prices) grew at a rate of % from 2009 to 2010. [Use one decimal place in your answer] 2009 2010 Quantity of Money $200 $216 Velocity of Money 10 Price Level $5.00 Quantity of Output 400 400
Suppose an economy has a price index at 19, real GDP of $11.83 trillion, and a money supply (M2) of $21.79 trillion. What is the M2 velocity of money for this economy? Round this to two digits after the decimal.
What would likely be the short-term impact on a country's inflation rate if the central bank significantly increases the money supply? A. The inflation rate would decrease. B. The inflation rate would remain unchanged. C. The inflation rate would increase. D. The inflation rate would initially increase, then sharply decrease.
21.According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A)the Organization of Petroleum Exporting Countries (OPEC). B)the U.S. Treasury. C)the Federal Reserve. D)private citizens. 22.According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A)increasing. B)decreasing. C)7 percent. D)constant. 23.If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A)3 B)4 C)9 D)11 24.Percentage change in P is approximately equal to the percentage change in: A)M. B)M minus percentage change in Y. C)M minus percentage change in Y plus percentage change in velocity. D)M minus…
Assume an economy’s annual money velocity in circulation is 10. Please answer the following two question: In the view of monetarists (i.e. neoclassical view), if the annual economic growth rate is 6%, what should be the money supply increasing rate to maintain a low inflation rate as 3%? Please show equation.
Suppose velocity increases by 2 percent and potential GDP grows by 4 percent. The trend inflation rate will equal zero if the quantity of money grows by -2 percent. 4 percent. 0 percent. 2 percent.
According to the long-run relationship between money growth, income growth, and the change in the price level, if European inflation is higher than U.S. inflation but money growth is the same, it must be that: a) real income growth in Europe and the United States is the same. b) real income growth in Europe is larger than real income growth in the United States. c) real income growth in the United States is higher than in Europe. d) the level of nominal income is higher in Europe than in the United States.
Suppose that the money supply grows at 5 percent. Suppose that real GDP or output grows at 7 percent. According to the Quantity Theory of Money, what should the inflation rate be? Please express your answers as a percentage. Also, make sure to round your answers to the nearest 100th decimal points. For example, write 2.67 for 2.67 percent. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
If the GDP price index is 150, real GDP is $10 trillion, and the quantity of money is $5 trillion, what is the velocity of circulation? The velocity of circulation is _____? Thank you!!
The equation of exchange is given by MXV = PxQ, where M is the money supply, V is the velocity of money, P is the economy's price level, and Q is Real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 2 12 REAL GDP (Trillions of dollars) AD O AS 2 ?

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