Nominal GDP in this economy is trillion. If the velocity of money is 2, the money supply in this economy is Shift the AD curve on the previous graph 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 original position, just drag it a little farther. Based on the new price level, the new money supply must be trillion in the long run if the velocity of money remains at 2. Because the percentage decrease in the price level is the percentage decrease in the money supply. This illustrates the
Nominal GDP in this economy is trillion. If the velocity of money is 2, the money supply in this economy is Shift the AD curve on the previous graph 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 original position, just drag it a little farther. Based on the new price level, the new money supply must be trillion in the long run if the velocity of money remains at 2. Because the percentage decrease in the price level is the percentage decrease in the money supply. This illustrates the
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 graph shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy.
PRICE LEVEL
18
15
12
3
0
0
3
8
9
12
REAL GDP (Trillions of dollars)
AD
15
18
Nominal GDP in this economy is
trillion.
If the velocity of money is 2, the money supply in this economy is
| 2 | 2
Shift the AD curve on the previous graph 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 original position, just drag it a little farther.
Based on the new price level, the new money supply must be $
trillion in the long run if the velocity of money remains at 2.
Because
'
the percentage decrease in the price level is
the percentage decrease in the
money supply. This illustrates the
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