8 Norminal GDP in this economy is Strillion.If the velocity of money is 3, the money supply in this economy is $18 trillionShift the AD curve on the previous diagram to show the effects of a decrease in the money supply.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its onginal position, just drag it a little farther.Based on the new price level, the new money supply must betrillion in the kong run if the velocity of monex remains at 3.Because velocity is assumed to be constantthe percentage decrease in the price level isless thanv the percentage decrease in themoney supply. This illustrates the fact that monetary policy can increase real GDP The equation of exchange is given by Mx V=PxY, where M is the money supply, V is the velocity of money, P is the economy's price level,and Y is real GDP.Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy,10ADASAD12th18REAL GOP (Trilions of dollars)PRICE LEVEL

Relationship between Nominal GDP and Real GDP Nominal GDP = Real GDP * Price level…

Nominal GDP in this economy is 5 trillion. If the velocity of money is 3, the money supply in this econony is $ 18 trillion Shift the AD curve on the previous diagram to show the effects of a decrease in the money supply Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its onginal position, just drag it a litle farther. Based on the new price level, the new money supply must be S trillion in the long run d the velocity of money remains at 3. Because velocity is assumed to be constant the percentage decrease in the price level is less than the percentage decrease in the money supoly. This illustrates the fact that monetary policy can increase real GDP

Nominal GDP in this economy is 5 trillion. If the velocity of money is 3, the money supply in this econony is $ 18 trillion Shift the AD curve on the previous diagram to show the effects of a decrease in the money supply Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its onginal position, just drag it a litle farther. Based on the new price level, the new money supply must be S trillion in the long run d the velocity of money remains at 3. Because velocity is assumed to be constant the percentage decrease in the price level is less than the percentage decrease in the money supoly. This illustrates the fact that monetary policy can increase real GDP

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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