Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 trillion. The price level is , and the velocity of money is . Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. If the Fed keeps the money supply constant, the price level will , and nominal GDP will . True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year. True False If the Fed wants an inflation rate of 9 percent instead, it should the money supply by . (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 trillion. The price level is , and the velocity of money is . Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow. If the Fed keeps the money supply constant, the price level will , and nominal GDP will . True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year. True False If the Fed wants an inflation rate of 9 percent instead, it should the money supply by . (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 trillion.
The price level is
, and the velocity of money is
.
Suppose that velocity is constant and the economy's output of goods and services rises by 4 percent each year. Use this information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will , and nominal GDP will .
True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year.
True
False
If the Fed wants an inflation rate of 9 percent instead, it should the money supply by
. (Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)
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