Consider a closed economy in which the money supply totals $120,000. The price l

Question

Consider a closed economy in which the money supply totals $120,000. The price level is constant at a value of 2 and nominal GDP is currently $200,000.

Calculate (income) velocity for this nation, carefully following all numeric instructions. Round any intermediate steps and your final answer to two decimal places.

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Rational expectations

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According to our lecture, the worst hyperinflation in recorded history hit its worst point around

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If income velocity and real GDP are held equal (constant) in a given closed economy, then a 2% increase in M1 will lead to

Question

Cost push inflation

Explanation / Answer

ANSWER.

From theory we knew that,

Velocity of money(V) = Nominal GDP / Quantity of money supply

Now if we put the values, we will get

V = $200,000 / $120,000 = 1.67.

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