Help, i don\'t understand why this is worng, also what is the correct answer?!.

Question

Help, i don't understand why this is worng, also what is the correct answer?!.

For the next two questions, suppose that the velocity of money permanently increases by 35%. If the money supply is not changed in response, which of the following will occur in the short run? Prices are unchanged, nominal GDP is unchanged, real GDP rises O Unemployment rises, prices rise, real GDP is unchanged O Real GDP is unchanged, nominal GDP rises, prices rise O Unemployment falls, real GDP rises, prices rise O Real GDP, nominal GDP, and unemployment are all unchanged short run when AD changes Incorrect. What happens to AD when the velocity of money increases? Is real GDP unchanged in the this way? What will happen in the long run? O O Prices are unchanged, nominal GDP is unchanged, real GDP rises Unemployment rises, prices rise, real GDP is unchanged Unemployment falls, real GDP rises, prices rise Real GDP, nominal GDP, and unemployment are all unchanged Real GDP is unchanged, nominal GDP rises, prices rise O O

Explanation / Answer

1) unemployment falls, real GDP rises, prices rises.

As increased velocity of money means the increase in demand. As the same money is being used to fund various things at a faster speed. Hence, increased demand would lead to rose in price and more work force would be required for the production purposes.

2)real DP is unchanged, nominal GDP rises, prices rises.

As high velocity of money causes inflation.

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