Suppose that initially the money supply is $2 trillion, the price level equals 4, the real GDP is $6 trillion in base-year dollars, and income velocity of money is 12. Then the money supply increases by $200 billion, while real GDP and income velocity of money remain unchanged a. According to the guantity theory of money and prices, calculate the new price level after the increase in money supply:

Suppose that initially the money supply is $2 trillion, the price level equals 4, the real GDP is $6 trillion in base-year dollars, and income velocity of money is 12. Then the money supply increases by $200 billion, while real GDP and income velocity of money remain unchanged a. According to the guantity theory of money and prices, calculate the new price level after the increase in money supply:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that initially the money supply is $1 trillion, the price level equals 3, the real GDP is $5 trillion in base-year dollars, and income velocity of money is 15. Then the money supply increases by $100 billion, while real GDP and income velocity of money remain unchanged. a. According to the quantity theory of money and prices, calculate the new price level after the increase in money supply:. b. Calculate the percentage increase in money supply: %. c. Calculate the percentage change in the price level: %. d. The percentage changes in the money supply is percentage changes in the price level. equal to the greater than the less than the
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Use the graph to explain why changes in the supply of money affect the quantity of money demanded.