number 4 only please, please answer question as fully and complete all parts, th

Question

number 4 only please, please answer question as fully and complete all parts, thank you

of money, if the money supply doubles, what happens to the price level? What happens to real GDP? In both cases, state the percentage change in either the price level or real GDP. Much of the economic news we read about can be reinterpreted into our "Mv = PY" framework. Turn each of the following news headlines into a precise statement about M, v, P, or Y. "Deposits in U.S. banks fell in 2015." "American businesses are spending faster than ever." "Prices of most consumer goods rose 12 percent last year." "Workers produced 4 percent more output per hour last year." "Real GDP increased 32 percent in last decade." "Interest rates fall: consumers hold more cash." It's time to take control of the Federal Reserve (which controls the U.S. money supply). In this chapter, we're thinking only about the long run " so Y (real GDP) is out of the Fed's control,

Explanation / Answer

since v=velocity of money(transactions)

PY=value of transactions... so we need M dollars to make these transactions each period.....v is the velocity of these transactions(no.of transactions made)

so....

a) the value of PY decreases..hence the value of Mv also decreases

b)Pt(Gt-Tt) = dMt = Mt - Mt-1

c)the P(price) value can change only when M value can change

d)
Y (real output) is not affected by M. This means that a fundamental real variable such as Y is not affected by money since it is determined by the production function and labor market equilibrium (as seen in the Classical Theory).

Then, only P (the price level) can change when M changes.

Implication: changes in the stock of money lead to proportional changes in the price level.

e)y=real GDP

therefore Y decreased 32%

f)
i = r + pe

for real interest rate, the nominal interest is determined by the inflation rate: higher pe leads to higher i.(i=interest and r=rate ,p=period)

if the money supply grows faster than output, we should see a comparable increase in the price level

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