Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 2CQQ
To determine
Price level and velocity.
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Assume the money supply is $600, the velocity of
money is 6, and the price level is $3. Using the
quantity theory of money: a. Determine the level
of real output. b. Determine the level of nominal
output. c. Assuming velocity remains constant,
what will happen if the money supply rises 20
percent? d. If the government established price
controls and also raised the money supply 5
percent, what would happen? Instructions: You
may select more than one answer. Click the box
with a check mark for correct answers and click to
empty the box for the wrong answers.
Let's assume that in our economy money supply is $15 billion, Velocity (V) is 5, and Output (Y) is $70 billlion in 2019. The base year is 2018.
A. Calculate the price level (P) in this economy.
B. What can you say about about inflation rate between 2018 and 2019.
C. Calculate the money supply in this economy if we want inflation to be zero (0).
D. If in 2021 this economy grows by 10% and money supply increases by 15%, what would be the inflation rate?
Fo
The banking sector experiencing bank panic when:
Select one:
a. Many depositors simultaneously decide to withdraw money from a bank.
b. believe that discretionary monetary policy should be replaced by a fixed rule relating to the growth of the money supply.
c. Many banks experiencing runs at the same time.
d. None of the above.
Velocity is:
Select one:
a. Money supply is the primary determinant of both short-run movements in nominal GDP and long-run movements in prices.
b. Measured as the ratio of nominal GDP to the stock of money.
C. Keynesian theories hold that many other forces besides money also affect aggregate demand.
d. The rate at which money circulates through the economy.
Chapter 22 Solutions
Essentials of Economics (MindTap Course List)
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- In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500bushels of wheat (Y or real GDP). Price of wheat and money supply are $2 per bushel and $1,000respectively. In 2020, the central bank increases money supply by $ 1040. Suppose both the velocity ofmoney (V) and the amount of wheat produced remain unchanged. a. Compute the velocity of money and nominal GDP in 2019. b. Calculate inflation rate in year 2020. c. Use a well-labelled money supply-demand diagram to illustrate and explain what happen to the pricelevel and the value of money after such money injection?arrow_forwardthe money supply of Freedonia this year is $150 billion nominal GDP is $750 billion .assuming that velocity of money is stable. real GDP gross 2%this year. and money supply does not change what are the velocity, price level, and inflation ratearrow_forwardThe number of times per year each dollar is spent A. Money Supply B. Velocity C. Price Level D. Quantity of Output E. All of the abovearrow_forward
- Question 2 a According to the quantity theory of money, if nominal GDP is $800, real GDP is $600, and money supply is $400, then Select one: a. the price level is ¾, and velocity is 2. b. the price level is 2/3, and velocity is 2. c. the price level is 1.33, and velocity is 2. d. the price level is 1.33, and velocity is 1.5. e. the price level is 1.33, and velocity is 1.4. Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this linearrow_forwardIf there is a shortage of money in the economy, then : A. The purchasing power of money will tend to fail B. The prices will tend to rise C. The economy will fall into a recession D. The real money supply (m/p) will increasearrow_forwardWhat is the likely effect on inflation when a central bank increases the money supply rapidly? A. Inflation will decrease. B. Inflation will remain stable. C. Inflation will increase. D. Inflation will first decrease, then increase.arrow_forward
- An economy is at full employment. The quantity of money is growing at 8.3 percent a year, the nominal interest rate is 9.5 percent a year, real GDP is growing at 5.0 percent a year, and the inflation rate is 3.1 percent a year. What is the change in the velocity of circulation? Why might it be changing? The velocity of circulation is _______. A. increasing by 3.1 percent a year B. decreasing by 0.2 percent a year C. increasing by 0.2 percent a year D. constantarrow_forwardIf nominal GDP in an economy is $1500 and the money supply is $500, what is the velocity of money? a. 333 b. 5 c. 3 d. 7500arrow_forward4the money supply in freedonia this year is $150 billion Nominal GDP is $750 billions and real GDP is $250 billion. assuming that velocity of money is stable real GDP grows by 2%this year and the money supply does not change. what are the velocity price level and inflation ratearrow_forward
- Provide the equation for the velocity of money in terms of Price level (P), output (Y), and the amount of money in the economy (M) a) Explain what will happen to velocity if P increases and why. b) Explain what will happen to velocity if Y increases and why. c) Explain what will happen to velocity if M increases and why.arrow_forwardQ1. In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500 bushels of wheat (Y or real GDP). Price of wheat and money supply are $2 per bushel and $1,000 respectively. In 2020, the central bank increases money supply by $ 1040. Suppose both the velocity of money (V) and the amount of wheat produced remain unchanged. a. Compute the velocity of money and nominal GDP in 2019. b. Calculate inflation rate in year 2020. c. Use a well-labelled money supply-demand diagram to illustrate and explain what happen to the price level and the value of money after such money injection?arrow_forwardIn the money market, the y axis of the coordinate plane is which variable below? a.Interest rate b.Wage c.Price d.Velocity of moneyarrow_forward
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