Suppose that this year's money supply is $2 trilion, nominal GDP is $10 villion, and real GDP is S8 trillon (a) What is the price level? What is the velocity of money? (b) Suppose that velocity is constant, and the economy's output of goods and services rises by 15 percent each year. What will happen to nominal GOP and the price level next year if the Fed keeps the money supply constant? (c) What money supply should the Fed set next year if it wants to keep the price level stable, given that velocity is constant, and the economy's output of goods and services has risen by 15%? (d) What money supply should the Fed set next year iit wants inflution of 5 percent, with velocity stila constant and the economy's output of goods and services irisen by 15%?

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Money Growth And Inflation
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Suppose that this year's money supply is $2 trillion, nominal GDP is $10 trillion, and real GDP is $8 trillion
(a) What is the price level? What is the velocity of money?
(b) Suppose that velocity is constant, and the economy's output of goods and services rises by 15 percent each year. What will happen to nominal GDP and the
price level next year if the Fed keeps the money supply constant?
(c) What money supply should the Fed set next year if it wants to keep the price level stable, given that velocity is constant, and the economy's output of goods
and services has risen by 15%?
(d) What monoy supply should the Fed set next year if it wants inflation of 5 percent, with velocity otill constant and the economy's output of goods and services
risen by 15%?
Transcribed Image Text:Suppose that this year's money supply is $2 trillion, nominal GDP is $10 trillion, and real GDP is $8 trillion (a) What is the price level? What is the velocity of money? (b) Suppose that velocity is constant, and the economy's output of goods and services rises by 15 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? (c) What money supply should the Fed set next year if it wants to keep the price level stable, given that velocity is constant, and the economy's output of goods and services has risen by 15%? (d) What monoy supply should the Fed set next year if it wants inflation of 5 percent, with velocity otill constant and the economy's output of goods and services risen by 15%?
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