Suppose that this year’s money supply is £500 billion, nominal GDP is £10 trillion,  and real GDP is £5 trillion.   1. Suppose that velocity is constant, and the economy’s output of goods and  services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?  2. What money supply should the Fed set next year if it wants to keep the price level stable?  3. What money supply should the Fed set next year if it wants inflation of 10 percent?

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