1) if nominal GDP is 25 trillion and the quantity of money is 5 trillion, then the velocity of money is 5

Economics Sep 18, 2020

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..........?

Expert Solution

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%

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