Attempts: Consider a simple level, and output. For example, in 2015, the mones e
ID: 1174442 • Letter: A
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Attempts: Consider a simple level, and output. For example, in 2015, the mones economy that produces only ples. The followieng table contains infcrmatike on supply was f$ was 55.00, and the ecoe prode Quantity of Money Price Level Quantity of Output (Ples) Nominal GDP Year 2015 2016 (Dollars) 200 5.00 202 The money supply grew at a rate of 19 from 2015 to 2016. Since ple cutput did not change from 2015 to 2016 and the eloty of the change in the money supply mas reflected 2016 was 1% - rch here to searExplanation / Answer
The value of nominal GDP equals the price of output (P) times the quantity of output (Y). In this case, nominal GDP in 2015 equals 400 pies * $5.00 per pie = $2000.
So the nominal GDp in 2015 is $2,000.
The velocity of money measures the number of times the typical unit of currency is used to pay for newly produced goods or services.
To calculate the velocity of money, divide the value of output (nominal GDP) by the quantity of money.
Let V be the velocity of money, P be the price level, Y be
the quantity of output (real GDP), and M be the quantity of money. The nominal output is the value of current output measured with current prices, or P* Y.
V = ($5.00x400)/$200 = 10. Therefore, we should have entered 10 for the velocity of money in 2015.
Notice that the value of nominal GDP is $2,000 in 2015. In order for people to buy $2,000 worth of pies with a quantity of money equal to only $200, each unit of currency must have turned over, on average, 10 times per year.
Rearrange the quantity equation to solve for the price level (P) in 2016 : P = (M x V)/Y = ($202 x 10)/400 = $5.05 Therefore, we should have entered $5.05 for the price level in 2016.
In 2016, nominal GDP equals 400 pies * $5.05 per pie = $2020.
The money supply grew at a rate of 1% from 2015 to 2016. Since pies output did not change from 2015 to 2016 and the velocity of money remained the same, the change in the money supply was reflected entirely in changes in the price level. The inflation rate from 2010 to 2011 was 1%.
Explanation:
Money supply growth rate = (2020 - 2000)/2000 = 0.01
Money supply grew by 1%.
And as the output does not change, the inflation rate is also 1%.
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