Back to Assignment Attempts Keep the Highest / 5 3. The equation of exchange The equation of exchange is given by M X V = P x Q, where M is the money supply, V is the velocity of money, P is the economy's price level, and Q is real GDP. Suppose the following graph shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. 18 AS O 15 AD 12 AS PRICE LEVEL 8 AD 0 3 5 8 REAL GDP (Trillions of dollars)Nominal GDP in this economy is $ trillion. If the velocity of money is 3, the money supply in this economy is Shift the AD curve on the previous graph to show the effects of an increase in the money supply. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Based on the new price level, the new money supply must be $ trillion in the long run if the velocity of money remains at 3. Because , the percentage increase in the price level is the percentage increase in the money supply. This illustrates theNominal GDP in this economy is $ trillion. If the velocity of money is 3, the money supply in this economy is $1 trillion Shift the AD curve on the previous graph to show the effects of a the money supply. $6 trillion Note: Select and drag one or both of the curves to the desired pos will snap into position, so if you try to move a curve and it snaps back $9 trillion to its original position, just drag it a little farther. $12 trillion Based on the new price level, the new money supply must be $ n in the long run if the velocity of money remains at 3. $15 trillion Because the percenta $18 trillion o the price level is the percentage increase in the money supply. This illustrates theNominal GDP in this economy is $ trillion. If the velocity of money is 3, the money supply in this economy is Shift the AD curve on the previous graph to show the effects of an increase in the money supply. Note: Se es to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back velocity is assumed to be constant to its ong er. the AD curve is downward sloping Based or supply must be $ trillion in the long run if the velocity of money remains at 3. the Federal Reserve controls M Because , the percentage increase in the price level is V the percentage increase in the money supply. This illustrates theNominal GDP in this economy is trillion. If the velocity of money is 3, the money supply in this economy is V . Shift the AD curve on the previous graph to show the effects of an increase in the money supply. Note: Select and drag one or both of the curves to the desired position. Curves will snap into posi ry to move a curve and it snaps back greater than to its original position, just drag it a little farther. less than Based on the new price level, the new money supply must be _trillion in the long run i money remains at 3. the same as Because V , the percentage increase in the price level is V the percentage increase in the money supply. This illustrates the V Nominal GDP in this economy is trillion. If the velocity of money is 3r the money supply in this economy is 'V . Shift the AD curve on the previous graph to show the effects of an increase In the money supply. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so ifyou try to move a curve and it snaps back to its original position, just drag it quantity theory of money Based on the new price levelJ the fact that monetary policy can increase real GDP he long run if the velocity of money remains at 3. importance of the Federal Reserve Because price level is 'V the percentage increase in the money supply. This illustrates the 'V