Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 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 4 percent each year. Use this information to answer the questions that follow.If the Fed keeps the money supply constant, the price level will    , and nominal GDP will    . 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    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.)

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Asked Nov 29, 2019
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Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 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 4 percent each year. Use this information to answer the questions that follow.
If the Fed keeps the money supply constant, the price level will    , and nominal GDP will    .
 
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    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.)
 
 

 

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Expert Answer

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Since we answer only up to 3 sub-parts, we are answering the first three. If you want to get answered for the other sub-part as well then kindly post the question again.

It is given that the money supply is $600 billion, nominal GDP is $15 trillion and the real GDP is $3 trillion.

a. The price level can be calculated by the formula given below:

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Nominal GDP Price Level Real GDP 15 trillion Price Level 3 trillion

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Step 2

The velocity of money can be calculated by the following formula:

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Nominal GDP Velocity of money Money Supply 15 trillion Velocity of money =25 0.6 trillion

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Step 3

b. If Fed keeps the money supply constant, the price level will fall and the nominal GDP will remain unchanged...

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