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8 November, 22:28

Consider nominal GDP is 1500 and the money supply is 400. Instructions: Enter numerical values to two decimal places. a) What is the velocity? V = 3.75 b) If nominal GDP rises to 1600, but the money supply does not change, how has velocity changed? Velocity will (increase/decrease) increases by 4-3.75 to V = 0.25 c) If GDP now falls back to 1500 and the money supply falls to 350, what is velocity? V = 4.29

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  1. 8 November, 23:06
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    a. V=3.75

    b. Velocity increases by 0.25

    c. Velocity is 4.29

    Explanation:

    a) the equation of exchange in the market is:

    MV=PY

    M=money supply

    V=velocity

    PY=nominal GDP

    V=PY/V

    V=1500/400=3.75

    the velocity is 3.75

    b)

    V=1600/400

    =4

    the velocity increases by = 4-3.75=0.25

    c)

    V=1500/350

    =4.28571429

    =4.29

    the velocity is 4.29
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