In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion Nominal interest rate: 5 percent Price level: 1.5 Velocity of circulation: 7 Required reserve ratio: 10%. a. Assume the central bank made an open market purchase in 2019, increasing the monetary base by $10 million. What is the increase to the money supply? b. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019?

Essentials of Economics (MindTap Course List)
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ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
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  1. In 2018, assume the economy was at full employment with the following economic data:
  • Real GDP: $7 billion
  • Nominal interest rate: 5 percent
  • Price level: 1.5
  • Velocity of circulation: 7
  • Required reserve ratio: 10%.

a. Assume the central bank made an open market purchase in 2019, increasing the monetary base by $10 million. What is the increase to the money supply?

b. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019?

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