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?

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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The quantity equation, also known as the equation of exchange, shows that the product of the money supply (M) and the velocity of money (V) is equal to the product of the price level (P) and real GDP (Q): Mx V = PxQ. Observe that when the left-hand side of the quantity equation, Mx V, changes by a given percentage, the right-hand side, P x Q, must change by the same percentage: Percentage Change in (Mx V) = = You can use the rule that the percentage change in the product of two variables is approximately equal to the sum of the percentage changes in each of the variables (as long as the percentage changes are fairly small) to further analyze changes in the variables of the quantity equation. In the following equation, let "%A" stand for "percentage change in": %AM+%AV = = Percentage Change in (PxQ) %AP+%AQ For example, if you know that the money supply grows at a rate of 8% per year, velocity grows at a rate of 1% per year, and real GDP grows at a rate of 5% per year, you can use this…
Please send me answer within 10 min!! ( Please solve all 3 questions!! ) I will rate you good for sure!!
All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 3? (Use this information as necessary to answer the following 4 questions.) Suppose now that economists expect the velocity of money to increase by 50% as a result of the monetary stimulus. What will be the total increase in nominal GDP? If GDP is 1,500 and the money supply is 400, what is velocity? If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?
c) The demand for money is given by: Md 0.5Y - 2000r i. If the income level is Y = 1000, and the interest rate is r= 10%, what is the demand for money? ii. What is the equilibrium level of interest rates when the supply of money is equal to 200? iii. What happens to the equilibrium rate of interest when increase in the money supply to 400?
Which one of the following statements regarding the demand for money is correct? (a) A positive relationship exists between the quantity of money demanded and the prevailing interest rate in an economy; (b) The demand for money is made up of the sum of all the money balances that participants in the economy would like to have; (c) For a given interest rate, an increase in nominal income increases the demand for money; (d) Two key factors that impact on the demand for money by individuals are savings and investments available to participants.
Q47 Which of the following is the definition for the real supply of money? Select one: a. the actual quantity of money, rather than the officially reported quantity. b. the stock of high powered money only. c. the ratio of the real GDP to the nominal money supply. d. the stock of money measured in terms of goods, not dollars.
Exercise 1 cr+1 Consider the money supply Ms=mxB , m = cr+rr Assume that the demand for real money is given by the equation (M/P)d=0.25Y, and that the output has been growing 3% per year. Assume, further, that you have been called before Congress to testify about the long-run effects of increasing the growth of the money supply to 10 % per year. 1. State, compute and explain the long-run effects of this change on the inflation rate, on the nominal interest rate, on the real interest rate, on investment and on the real GDP. For each of them, argue both using the formulae that we studied and the macroeconomic dynamic beyond the effect. 2. Compute the implied money velocity. Suppose that the actual nominal value of the output (PY) is 1000, the value of the reserves is 50 and the toal value of the deposits is 75. Find the actual money multiplier. 3. State the different ways in which the central bank can achieve the change (+10%) in the money supply (think about the variables that can…
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.…
6
u10. Using the demand and supply schedule for money shown below, do the following: a)Graph the demand for and the supply of money curves. b)Determine the equilibrium interest rate. c)Suppose the RBA decreases the money supply by $5 billion. Show the effect in your graph and describe the money market adjustment process that is likely to follow. What is the new equilibrium rate of interest? Interest rate (%) Demand for money (billions of dollars) Supply of money (billions of dollars) 4 10 30 3 20 30 2 30 30 1 40 30
Question 1 of 20 Macmillan Learning The equation of exchange, Mx V=PxQ, relates to the quantity theory of money. In this equation, M represents the supply of money. V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run? Both money supply (M) and money velocity (V) are held constant. Money supply increases (AM) will directly increase real GDP. Changes in the money supply (AM) will balance out with changes in velocity (AV). Changes in the money supply (AM) will balance out with changes in prices (AP).
We would expect that the level of income that would equate total demand for and total supply of money would be: (a) roughly at the level of the Fed’s interest rate target; (b) lower the lower the interest rates; (c) equal to the level that would equate realized investment with realized savings; (d) higher the lower the interest rate (or lower the higher the interest rate)