Question
2 Suppose that, during a year, a country's nominal GDP was measured at $1400 billion and the volume of money (say, defined by M1) circulating
2 Suppose that, during a year, a country's nominal GDP was measured at $1400 billion and the volume of money (say, defined by M1) circulating in the economy during the year was, on average, equal to $350 billion. Using the equation of exchange determine the velocity of money during the year.
3 Now suppose that in question 2 the velocity of money remained unchanged during the following year and the volume of money - as defined by M1 - increased by 5.5 per cent. Using the quantity theory of money, predict the value of annual nominal GDP during the next year.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started