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Homework answers / question archive / 1) if nominal GDP is 25 trillion and the quantity of money is 5 trillion, then the velocity of money is 5
1) if nominal GDP is 25 trillion and the quantity of money is 5 trillion, then the velocity of money is 5. If the velocity is 5 , nominal gdp is 20 trillion then the quantity of money ............?
2) if the growth rate of money supply is 8% and velocity is constant and real gdp grows at 3% per year on average. then the inflation rate will be..........?
1.)
V = (P × Y)/M = nominal GDP/M
here,
V=velocity of money
P =price level
Y =real GDP
M =money supply
V = nominal GDP/M
5 = $20 trillion/ M
M = 20/ 5
= $4 trillion
2.)
Change in M = 8%
Change in GDP = 3%
Change in V = 0
8% + 0 = Inflation Rate + 3%
Inflation rate = 8% - 3%
= 5%
