In year one, the money supply (M) is equal to 500, the velocity of money (V) is 5, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 530.4 and velocity is unchanged. If the economy grew at the rate of 4 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 500 to 530.4, the price level rose from 1.0 to , indicating that the inflation rate was percent.

In year one, the money supply (M) is equal to 500, the velocity of money (V) is 5, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 530.4 and velocity is unchanged. If the economy grew at the rate of 4 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 500 to 530.4, the price level rose from 1.0 to , indicating that the inflation rate was percent.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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