Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 7, Problem 2AP
To determine
Reason for M1 velocity upward trend.
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Students have asked these similar questions
Suppose the money supply M has been growing at 19% per year and nominal GDP, PY, has been growing at 77% per
year. The data are as follows (in billions of dollars).
M
PY
V
2021
400
4000
2022
476
7080
2023
566.44
12,532
Calculate the velocity V in each year. (Fill in the table above, rounding to one decimal place.)
Velocity is growing at an approximate rate of % per year. (Round to the nearest whole number.)
What is the effect on velocity if Congress outlaws the use of credit cards?
What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?
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- Suppose an economy has a price index at 19, real GDP of $11.83 trillion, and a money supply (M2) of $21.79 trillion. What is the M2 velocity of money for this economy? Round this to two digits after the decimal.arrow_forward“If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.arrow_forwardHow would a doubling of velocity affect Real and Nominal GDP, assuming the money supply doesn’t changearrow_forward
- What is velocity of money? List two major determinants of velocity of money.arrow_forwardUsing the following information what is the velocity of money? Component The velocity of money is equal to: Money supply Price level Real GDP Value $900 1.51 $13,000 (enter your answer rounded to two decimal places).arrow_forwardIt is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we assume that velocity is constant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equalarrow_forward
- Money demand is given by Md/P = 1423 + 0.8Y-1202i Given that P = 173, Y = 2987, and i = 0.15, velocity is equal to (two decimal points) Answerarrow_forwardSuppose the velocity of money decreased from 1.5 to 1.3. Velocity of M2 2.0 1.9 1.8 1.7 1.6 1.5 1960 Recession % Average 1965 1970 1975 1980 Ratio of GDP to M2 1985 M 1990 YEAR 1995 By what percent would M have to increase in order to fully offset this decrease in V? Instructions: Enter your response as a percentage rounded to one decimal place. 2000 2005 2010 2015 2020arrow_forwardSuppose you are put in charge of the central bank in an economy where potential GDP is growing at 3% and inflation has been 5% a year for the past few years. a) You find out that your predecessor had increased the money supply by 7% a year during this time. What does that say about the rate of velocity growth in this economy? b) You decide that 5% inflation is too high a rate, and that you need to take steps to reduce inflation to 2% a year. Assuming that the growth rate of velocity is a constant, what is the new rate of money growth you should implement in this economy? c) Continuing with your answer from b), what is the new rate of money growth you should implement in this economy to keep inflation at 2% a year if all else equal i) The growth rate of potential output rises to 4% ii) The growth rate of velocity falls to 0% d) How would your answer to b) would change if velocity growth was not constant, but instead was a random variable vt? You can answer this with algebra or words,…arrow_forward
- If the money supply increases by 7%, the price level by 2%, and the real output by 6%, then according to the equation of the quantitative theory of money, the velocity of money increases by:arrow_forwardIf the money supply is $250 billion and nominal GDP is $1 trillion, the velocity of money is: Group of answer choices 4.00. 0.25. 2.50. 0.40.arrow_forwardWhat is the relationship between the velocity of money and the Cambridge k ?arrow_forward
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