The U.S. Federal Reserve responded to the 2020 COVID-19 lockdowns by imple- menting an expansionary monetary policy, causing M2 money supply to rise from $15.33 trillion in December 2019 to $18.3 trillion in July 2020. Over the same period, real GDP fell by 5.1 percent. (a) Assuming that the velocity of money was constant over this period, what should the inflation rate be, based on the quantity equation? Show your work. (b) Why would you not expect inflation to be immediate, following the monetary ex- pansion?

Q: Consider an economy in which the demand for money is of the formMt =(1/v) PtY        for t = 0, 1,…

A: To determine why the inflation rates differ in the two situations.

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A: * ANSWER :-

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A: Central bank wishes to maintain i = 0.1 0.2/0.1 x 5,000 = 10,000 Nominal Money supply = 10,000

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Q: Consider an economy in which the demand for money is of the formMt =(1/v) PtYfor t = 0, 1, 2, · · ·…

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A: The factors that determine the magnitude of the cost of disinflation are as follows:-

Q: Suppose that initially the money supply is $2 trillion, the price level equals 4, the real GDP is S6…

A: a. By using quantity theory of money  M×V = P×Y  Original equation is  2×12 = 4×6

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