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Suppose that an economy is characterized by M= $9 trillion V=2 P= base index = 1.0…
Suppose that an economy is characterized by M= $9 trillion V=2 P= base index = 1.0
Instructions: Enter your responses rounded to two decimal places (do not include a negative sign (-) with your answers).
a. What is the real value of output (Q)? $D 18 trillion Now assume that the Fed increases the money supply by 20 percent and velocity remains unchanged.
b. If the price level remains constant, by how much will real output increase?
c. If, instead, real output is fixed at the natural level of unemployment (= Q from part a), by how much will prices increase in percentage terms?
d. By how much would V have to decrease to offset the increase in M (assuming Qand P did not change)?