Velocity and the quantity equation Consider a simple economy that produces only
ID: 1204215 • Letter: V
Question
Velocity and the quantity equation Consider a simple economy that produces only pies. The following table contains information on the economy's money supply, velocity of money, price level, and output. For example, in 2010, t he money supply was $320, the price of a pie was $8.00, and the economy produced 600 pies. Fill in the missing values in the following table, rounding to the nearest cent when necessary. The money supply grew rate of from 2010 to 2011. Since pie output did not change from 2010 to 2011 and the velocity of money the change in the money supply was reflected in changes in the price level. The inflation rate from 2010 to 2011 wasExplanation / Answer
M*V = P*Y
where M = money supply
V = velocity
P = price level
y = quantity produced
So, For Year 2010
MV = PY
320*V = 8*600
V = 4800/320 = 15
Nominal GDP =P*Q = 8*600 = 4800
For year 2011
MV = PY
336*15 =P*600
P = 5040/600 = 8.4
Nominal GDP = P*Q = 8.4*600 = 5040
Money supply growth rate = 336-320/320*100 = 5%
velocity of Money didn't change
reflected Completely or in same amount
Inflation rate = P2 - p1/p1*100 = 8.4-8/8*100 = 5%
If you don't understand anything, then comment, I will revert back on the same.
And If you liked the answer then please do review the same. Thanks :)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.