Question 7

Answer the following questions.Show your work.

a)All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 3?

b)Suppose now that economists expect the velocity of money to increase by 50% as a result of the monetary stimulus. What will be the total increase in nominal GDP?

c)if GDP is 1,500 and the money supply is 400, what is velocity?

d)If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?

e)If GDP now falls back to 1,500 and the money supply falls to 350, what is velocity?