Suppose that in year 2023, money supply (MS) is $ 800 billion, price level is $100 trillion, and real GDP (Y1) is $3 trillion. And expected real GDP of next year (Y2) is $3.18 trillion. 1. What is the velocity of money, V? (1 mark) 2. Suppose that velocity is constant. What will happen to the price level next year if the central bank keeps the money supply constant? (1 mark) 3. 4. You are also told that the central bank is planning to set money supply growth at 10%, indefinitely. Find the new real GDP (Y3) next year so that the central bank keeps the inflation rate at 2%? (2 marks) Now suppose that the central bank decided to expand the money supply at the same rate of 10% per year, indefinitely. Explain what will happen to the level of interest rate, inflation rate, and unemployment rate? (2 marks)
Suppose that in year 2023, money supply (MS) is $ 800 billion, price level is $100 trillion, and real GDP (Y1) is $3 trillion. And expected real GDP of next year (Y2) is $3.18 trillion. 1. What is the velocity of money, V? (1 mark) 2. Suppose that velocity is constant. What will happen to the price level next year if the central bank keeps the money supply constant? (1 mark) 3. 4. You are also told that the central bank is planning to set money supply growth at 10%, indefinitely. Find the new real GDP (Y3) next year so that the central bank keeps the inflation rate at 2%? (2 marks) Now suppose that the central bank decided to expand the money supply at the same rate of 10% per year, indefinitely. Explain what will happen to the level of interest rate, inflation rate, and unemployment rate? (2 marks)
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter28: Monetary Policy And Bank Regulation
Section: Chapter Questions
Problem 28RQ: Define the velocity of the money
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Transcribed Image Text:Suppose that in year 2023, money supply (MS) is $ 800 billion, price level is $100 trillion, and real GDP (Y1) is
$3 trillion. And expected real GDP of next year (Y2) is $3.18 trillion.
1. What is the velocity of money, V? (1 mark)
2. Suppose that velocity is constant. What will happen to the price level next year if the central bank
keeps the money supply constant? (1 mark)
3.
4.
You are also told that the central bank is planning to set money supply growth at 10%, indefinitely.
Find the new real GDP (Y3) next year so that the central bank keeps the inflation rate at 2%? (2 marks)
Now suppose that the central bank decided to expand the money supply at the same rate of 10% per
year, indefinitely. Explain what will happen to the level of interest rate, inflation rate, and
unemployment rate? (2 marks)
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