Do not type in dollar signs or round any of your answers. Modern Quantity Theory of Money Problem. In year one, the money supply (M) is equal to 400, the velocity of money (V) is 6, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 430.5 and velocity is unchanged. If the economy grew at the rate of 2.5 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 400 to 430.5, the price level rose from 1.0 to indicating that the inflation rate was percent.

Do not type in dollar signs or round any of your answers. Modern Quantity Theory of Money Problem. In year one, the money supply (M) is equal to 400, the velocity of money (V) is 6, and the price level is 1.0. According to the equation of exchange, in year 1, nominal and real GDP are both equal to In year 2, the money supply is increased to 430.5 and velocity is unchanged. If the economy grew at the rate of 2.5 percent, real GDP in year 2 is equal to while nominal GDP in year 2 is equal to As a result of the Fed's decision to increase the money supply from 400 to 430.5, the price level rose from 1.0 to indicating that the inflation rate was percent.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 6P

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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?
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