Question number 5

5. [A Look at Money, Inflation and the Fed] Quantity of Money Predicted Real GDP Predicted GDP Year (in billions USD) Velocity (billions USD) Deflator 2019 1655.6 17,360 1.01 2020 18,575 1.03 2021 10.75 19,060 a. Assume the quantity of money is expected to grow at a constant rate of 5.8% each year. Fill in the rest of the second column. b. Fill in the two blank cells in the third column using the quantity equation of money, and provide a brief definition of velocity.c. Fill in the empty cell in the fifth column. Is the price deflator increasing or decreasing over time? Given that the money supply is increasing over time, does this trend in the price deflator make sense? Explain. d. Could there ever be a scenario where the money supply is increasing, but the GDP price deflator is decreasing? Explain