Give exact answer without photo answer and take a like 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 bankkeeps 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% peryear, indefinitely. Explain what will happen to the level of interest rate, inflation rate, andunemployment rate? (2 marks)

1. Velocity of Money (V)We can rearrange the equation to solve for V:V = PY / MSubstituting the…

Answered: Suppose that in year 2023, money supply…

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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2. Suppose that in the U.S., the income velocity of money (V) is constant. Suppose, too, that every year, real GDP grows by 2.5 percent (%ΔY/year = 0.025) and the supply of money grows by 10 percent (%ΔM/year = 0.10). a. According to the Quantity Theory of Money, what would be the growth rate of nominal GDP = P×Y? Hint: %Δ(X×Y)  %ΔX + %ΔY.
1. Nominal GDP =P*Y, where P is the price level and Y is aggregate output (income) . We know from class slides that the velocity of money links money supply and nominal GDP. Given nominal GDP in a year is $10 trillion and the quantity of money (M1) is $2 trillion, what is the velocity? What is the meaning of this calculated velocity? 2. Suppose that real money demand is represented by the equation M“/P= 0.25×Y. Calculate the velocity of money. 3. Consider a five year $1000 semiannual coupon bond with a 5% coupon rate. If the bond is current trading for a price of $957.35, what is the bond's yield to maturity? If the bond's yield to maturity increase a little bit, what will the bond's price be? 4. Suppose a 7-year, $1,000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. Is this bond currently trading at a discount, at par, or at a premium? Explain. If the yield to maturity of the bond rises to 7%, what price will the bond trade for? 5.…
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3 Money demand function · Suppose a country has a money demand function: M. 0.5Y i a) Is velocity a constant value? If not, please derive the expression for velocity of money. b) Now assume the interest rate is 2.5%, calculate the velocity.
Suppose that this year's money supply is $2 trillion, nominal GDP is $10 trillion, and real GDP is $8 trillion (a) What is the price level? What is the velocity of money? (b) Suppose that velocity is constant, and the economy's output of goods and services rises by 15 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? (c) What money supply should the Fed set next year if it wants to keep the price level stable, given that velocity is constant, and the economy's output of goods and services has risen by 15%? (d) What monoy supply should the Fed set next year if it wants inflation of 5 percent, with velocity otill constant and the economy's output of goods and services risen by 15%?
19. Suppose that the money supply is $100, the velocity of money is 4, and real GDP is 200. (a) What is nominal GDP? (b) What is the price level (the GDP deflator)? (c) Assuming that the velocity of money is constant, what will nominal GDP equal if the Fed acts to increase the money supply to $200? (d) Assuming that the velocity of money is constant and that "money is neutral in the long run," what will real GDP equal in the long run if the Fed acts to increase the money supply to $200? (e) Still assuming that the velocity of money is constant and that money is neutral in the long run, what will the price level equal in the long run if the Fed acts to increase the money supply to $200?
4. [A Monetary Surprise] Consider an economy in which the demand for money is of the form M₁ = = P₁Y for t = 0, 1,2,..., where output is 150, the money velocity is 1.5. The money supply is 100 for t = 0, 1. In period 2, the central bank surprises people and announce that money supply will grow at 2 percent forever, that is, Mo = 100, M₁ = 100, M₂ = (1.02) M₁, M3 (1.02) M₂, and so on. (a) What is the inflation rate in period 1, 7? What is real money balance in period 1, ? What is the expected inflation in period 2, given the information available in period 1, E172? (b) What is the inflation rate in period 2, m₂? What is real money balance in period 2, 2? What is expected inflation in period 3, given the informa- tion available in period 2, E273? (c) What is the inflation rate in period 3, 73? What is real money balance in period 2, ? (d) Compare E₁₂ and 7₂. B
2. What “backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? There is ( no, some ) concrete backing to the money supply in the United States. Paper money, which has ( some, no ) intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would (increase, diminish ). People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and ( are, are not) legal tender, but people accept…
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4. Suppose the central bank of Oman needs to boost the economy by rising the money supply. It is calculated by the bankers and researchers that the velocity of money is 3, and the price level increases from 100 to 120 due to such boost. By applying the quantity equation of money, what would be the effect of a rise in the money supply of 200 billion Omani Riyals on quantity of goods and services in the Oman's economy with a starting money supply of 800 billion.
Suppose that this year's money supply is $1,200 billion, nominal GDP is $6,000 billion and real GDP is $5,000 billion. (This question concerns the Equation of Exchange in the Classical Quantity Theory of Money). a) What is the price level (expressed as a percentage-i.e., as a price index)? b) What is the velocity of money? c) Suppose that velocity is constant and the economy's output of goods and services rises by 6 percent each year. If the Fed keeps the money supply constant, what will nominal GDP be next year? d) Under the conditions in c) what will happen to the price level next year? e) What money supply should the Fed set next year if it wants to keep the price level stable? 1) What money supply should the Fed set next year if it wants the inflation rate to be 8 percent?

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