In year one, the money supply (M) is equal to 500, the velocity of money (V) is 5, 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 530.4 and velocity is unchanged. If the economy grew at the rate of 4 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 500 to 530.4, the price level rose from 1.0 to , indicating that the inflation rate was percent.

In year one, the money supply (M) is equal to 500, the velocity of money (V) is 5, 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 530.4 and velocity is unchanged. If the economy grew at the rate of 4 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 500 to 530.4, the price level rose from 1.0 to , indicating that the inflation rate was percent.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 7CQ

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