Answered: Suppose that this year's money supply…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 1PA

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1. Problems and Applications

Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.

The price level is_______, and the velocity of money is______.

Suppose that velocity is constant and the economy's output of goods and services rises by 3 percent each year. Use this information to answer the questions that follow.

If the Fed keeps the money supply constant, the price level will_______(fall by 3%/rise by 3%/stay the same), and nominal GDP will________(rise by 6%/stay the same/fall by 3%/rise by 3%/fall by 6%).

True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year. ________

True
False

If the Fed wants an inflation rate of 9 percent instead, it should________(decrease/increase) the money supply by_________%(Hint: The quantity equation can be rewritten as the following percentage change formula: (Percentage Change in M)+(Percentage Change in V)=(Percentage Change in P)+(Percentage Change in Y)Percentage Change in M+Percentage Change in V=Percentage Change in P+Percentage Change in Y.)

Note:- Please need all the answers that are required and also there are options given in bold words.

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