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Quantity Equation Consider a hypothetical economy X. This year's money supply is $500, nominal GDP is $10,000, and real GDP is $5,000. Assume that the
Quantity Equation
Consider a hypothetical economy X. This year's money supply is $500, nominal GDP is $10,000, and real GDP is $5,000. Assume that the velocity of money is constant and the economy's real output of goods and services rises by 3% each year,
a.Find the price level next year if the central bank keeps the money supply constant.
b.Suppose the central bank wants an inflation of 2% next year, what is the target growth rate of money supply?
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