Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 2QCMC
To determine
Price level and velocity.
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Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion and real GDP is $5 trillion.
a. What is the price level?
b. What is the velocity of money?
the money supply of Freedonia this year is $150 billion nominal GDP is $750 billion .assuming that velocity of money is stable. real GDP gross 2%this year. and money supply does not change what are the velocity, price level, and inflation rate
Question 2 a
According to the quantity theory of money, if nominal GDP is $800, real GDP is $600, and money supply is $400, then
Select one:
a. the price level is ¾, and velocity is 2.
b. the price level is 2/3, and velocity is 2.
c. the price level is 1.33, and velocity is 2.
d. the price level is 1.33, and velocity is 1.5.
e. the price level is 1.33, and velocity is 1.4.
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Chapter 17 Solutions
Principles of Macroeconomics (MindTap Course List)
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- 4the money supply in freedonia this year is $150 billion Nominal GDP is $750 billions and real GDP is $250 billion. assuming that velocity of money is stable real GDP grows by 2%this year and the money supply does not change. what are the velocity price level and inflation ratearrow_forwardQUESTION 3 a) Explain the quantity theory of money. b) Suppose the money supply is USD 400, real output is 2,000 units and the price per output is USD 100. i) Calculate the value of velocity ii) If the velocity is fixed at the value you solved for in part (a). what does the quantity theory of money suggest will happen if the money supply is increased to USD 4000.arrow_forwardMoney demand in an economy in which no interest is paid on money is Md p == 500 + 0.2Y - 1000i. a. Suppose that P = 100, Y = 1000, and i = 0.10. Find real money demand, nominal money demand, and velocity. b. The price level doubles from P = 100 to P = 200. Find real money demand, nominal money demand, and velocity.arrow_forward
- If nominal GDP in an economy is $1500 and the money supply is $500, what is the velocity of money? a. 333 b. 5 c. 3 d. 7500arrow_forwardAn economy is at full employment and real GDP is $1,000 billion. The inflation rate is 3.0 percent a year, the price level is 1.2, and the velocity of circulation is 8.0. What is the quantity of money? The quantity of money is _____ billionarrow_forwardProvide the equation for the velocity of money in terms of Price level (P), output (Y), and the amount of money in the economy (M) a) Explain what will happen to velocity if P increases and why. b) Explain what will happen to velocity if Y increases and why. c) Explain what will happen to velocity if M increases and why.arrow_forward
- QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?arrow_forwardIf Money Supply is $12,500, price level is 6.3, and velocity of money is 2.8, then how much is the real GDP? (Hint: enter your answer in 2 decimal places)arrow_forward(A) If real GDP is growing by 3% a year, what should the Fed do to the money supply to keep prices constant? Assume velocity is constant. If velocity is constant and nominal GDP increases by 5% what is happening to the money supply?arrow_forward
- Which of the following is correct?. (a) velocity is the rate at which money circulates(b) velocity equals 2 if transactions are $2M and money supply is $1M (c) velocity is 5 if the share that people want to hold of their income k = 20% (d) all of the above (e) none of the abovearrow_forwardQ.2 The growth in the velocity (V) has been steady at about 1%. We would like inflation to be 2%. If the economy grows at 2.5%, how fast should we let the money supply (M) grow? A.4.5% B.2.5% C.3.5% D.2.0%.arrow_forward1. Let’s consider a hypothetical economy where this year’s money supply is Tk.100, nominal GDP is Tk. 40000 and real GDP is Tk. 5000.a) What does the quantity theory of money say?b) Calculate the price level.c) Calculate the velocity of money.d) Suppose the central bank changes the money supply so that the new money supply is Tk. 500, calculate the newprice level.arrow_forward
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