1)The money supply has been growing at 10% per year and nominal GDP (PY) has bee

Question

1)The money supply has been growing at 10% per year and nominal GDP (PY) has been growing at 20% per year. Calculate velocity in each year given the following data in billions of dollars, and then calculate the growth in velocity.

                  2010      2011      2012

M              100         110         121

PY             1,000     1,200     1,440

V               ?                ?                ?

V Grth    ?                ?                ?

2)What happens to nominal GDP (PY) if velocity is constant at 5% and the money supply increases from $200 billion to $300 billion?

3)Suppose the liquididty preference function is given by

Calculate velocity for each period, using the money demand function, and the following values.

1   2 3 4 5   6

Y 12,000 12,500 12,250 12,500 12,800 13,000

Int (i)  .05 .07 .03 .05 .07 .04

The money supply has been growing at 10% per year and nominal GDP (PY) has been growing at 20% per year. Calculate velocity in each year given the following data in billions of dollars, and then calculate the growth in velocity. What happens to nominal GDP (PY) if velocity is constant at 5% and the money supply increases from $200 billion to $300 billion? Suppose the liquididty preference function is given by Calculate velocity for each period, using the money demand function, and the following values. 1 2 3 4 5 6 Y 12,000 12,500 12,250 12,500 12,800 13,000 Int (i) .05 .07 .03 .05 .07 .04 L(i,Y)=Y/S-1,000i

Explanation / Answer

1)

Use the quantity theory of money identity: M*V = P*Y

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