Homework Answers
1. Ans: Velocity = 8 , Price level = 4
Explanation:
Price level = Nominal GP / Real GDP = 800 / 200 = $4
The quantity theory equation is,
MV = PY
100 * V = 4 * 200
V = 800 / 100 = 8
2. Ans: Money quantity demanded < money quantity supplied which will cause the price level to increase.
Explanation:
When Money quantity demanded less than money quantity supplied which will cause the price level to increase. When price level increases, the value of money will decrease.
3. Ans: The monetary value of quantity produced by an economy.
Explanation:
Sine quantity physical good is unchanged, an increase in money supply will lead to increase in the monetary value of quantity produced by an economy.
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• if the velocity of money is 2, the money supply in this
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•because ( the federal reserve controls M/ velocity is assumed
to be constant/ the AD curve is downward sloping ), the percentage
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then ) the percentage increase im the money supply. the illustrates
the ( importance of the federal reserve /...
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