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Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion...

Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion and $288 billion, respectively.  

Instructions: Round your answers to 1 decimal place.

a. What is the velocity of money?

    

b. How will households and businesses react if the central bank reduces the money supply by $25 billion?

  • Households and businesses will reduce spending.

  • Households and businesses will increase spending.

  • Households and businesses will not react.

c. By how much will nominal GDP have to fall to restore equilibrium, according to the monetarist perspective?  

    

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