Can you see if my answer are correct? 6. Suppose the economy is characterized by

Question

Can you see if my answer are correct?

6. Suppose the economy is characterized by:

M= $6,000 Billion
V= 2.5
P= 100

(a) What is the real value of Q? Answer: 150 billion

Now assume the Fed increase the money supply by 10% and volcity remains unchanged?

(b) If the price level remains constant, by how much will real output increase?

Answer: 165 Billion or 10%

(c ) If instead, real output is fixed at the natural level of unemployment, by how much will prices
rise?
Answer: 10% since rising prices won't create any new profits incentives for increasing output

(d) By how much would V have to fall to offset the increase in M?

Answer: 0.05

Explanation / Answer

a) MV=PQ: 6,000*2.5=100*Q --> Q=150 billion. Your answer is correct. b) M=6,000*1.10=6,600; V=2.5; P=100; SO: 6,600*2.5=100*Q --> Q=165 --> 165/150=1.10 which means that it increased by 10%. Your answer is correct. c) Your answer is correct.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.