2. The velocity equation Aa Aa Consider a simple economy that produces only latk

Question

2. The velocity equation Aa Aa Consider a simple economy that produces only latkes. The following table contains information on the economy's output, money supply, velocity of money, and price level. For example, in 2013, the money supply was $200, the price of a latke was $5.00, and the economy produced 400 latkes. Fill in the table, and use it to answer the following questions. 20132014 Quantity of Money $200 $216 10 Velocity of Money Price Level $5.00 Quantity of Output 400 400 In 2013, nominal GDP was , whereas in 2014, nominal GDP was The money supply grew at a rate of 2014 and the velocity of money from 2013 to 2014. Since latke output did not change from 2013 to , the change in the money supply was reflected in changes in the price level. The inflation rate from 2013 to 2014 was

Explanation / Answer

2013
MV=PY
200V=2000
V=10

2014
MV=PY
216*10=400
P=5.4

200,216

INCREASE=(216-200)/200
=0.08
=8%

REMAINED THE SAME
INCREASE
INFLATION=(5.4-5)/5
=0.08
=8%

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