3. The equation of exchangeThe 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 LEVEL00500234REAL GDP (Trillions of dollars)Nominal GDP in this economy is SADtrillion.5Becausemoney supply. This illustrates theIf the velocity of money is 3, the money supply in this economy is6Based on the new price level, the new money supply must be6 4ADShift 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 backto its original position, just drag it a little farther.AStrillion in the long run if the velocity of money remains at 3.the percentage decrease in the price level isthe percentage decrease in the

A higher velocity often denotes a more vigorous and effective money circulation, which promotes…

Nominal GDP in this economy is trillion. If the velocity of money is 3, 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 S Because money supply. This illustrates the trillion in the long run if the velocity of money remains at 3. the percentage decrease in the price level is the percentage decrease in the

Nominal GDP in this economy is trillion. If the velocity of money is 3, 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 S Because money supply. This illustrates the trillion in the long run if the velocity of money remains at 3. the percentage decrease in the price level is the percentage decrease in the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3. The equation of exchange
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
00
5
0
0
2
3
4
REAL GDP (Trillions of dollars)
Nominal GDP in this economy is S
AD
trillion.
5
Because
money supply. This illustrates the
If the velocity of money is 3, the money supply in this economy is
6
Based on the new price level, the new money supply must be
6 4
AD
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.
AS
trillion in the long run if the velocity of money remains at 3.
the percentage decrease in the price level is
the percentage decrease in the

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