Only For New economics

  1. in this problem, all amounts are shown in billions


Suppose this year’s money supply is $800 billion, NGDP d $20 trillion and real GDP is $8 trillion


A.) What is the price level? What is the velocity of money?


B.) suppose the velocity is constant and the economy’s output raises by 5% each year. What will be the NGDP and the price level next year if the Fed keeps the money supply constant?


C.)What money supply should the Fed set next year if it wants to keep the price level stable ?


D.)Suppose the output still raises 5% next year, what money supply should the fed set next year if it wants inflation of -2%?


E.) Because of the wide use of credit cards and other electronically payment, the velocity changed to 27. how much percentage is the change in velocity? The Fed set the target for economy growth at 5% next year and the inflation to be -2%, how much percentage change in money supply does the Fed intend to conduct?


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