Question

Question 12 (1 point) Suppose the price level, as measured by the GDP deflator, is 1.14, the supply of money, measured by M1, is $3.4 trillion, and output, measured by real GDP, is $16.6 trillion. What is the velocity of money? Provide your answer as a number rounded to two decimal places. Do not include any symbols, such as "S," ", " "%," or "," in your answer. Your Answer: Answer Question 13 (1 point) Suppose the growth in the quantity of money is 3.3 percent and growth in output (GDP) is 1.7 percent. What is the rate of price inflation, if any. Provide your answer as a percentage rounded to two decimal places. Use a negative sign "-" for negative changes. Do not include any symbols, such as "S"","%," or "," in your answer. Your Answer: Answer

Answer 1

(12) The quantity theory of money

M*V = P*Y

where M is the money supply.

V is the velocity

P is the price level

Y is the real GDP.

M*V = P*Y

$3.4 trillion * V = (1.14 * $16.6 trillion.)

V = (1.14 * $16.6 trillion) / $3.4 trillion

V = 5.565

V = 5.57

Answer: The velocity of money is 5.57

(13)

The quantity theory of money

M*V = P*Y

where M is the money supply.

V is the velocity

P is the price level

Y is the real GDP

In terms of growth:

% growth in M + % growth in V = % growth in P + % growth in Y

% growth in M = 3.3

% growth in Y = 1.7

% growth in V = 0 (Velocity remains constant)

% growth in M + % growth in V = % growth in P + % growth in Y

3.3 + 0 = % growth in P + 1.7

% growth in P = 3.3 - 1.7

% growth in P = 1.6

The rate of price inflation is 1.6%

Answer: 1.6