Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.

The price level is

, and the velocity of money is

.

Suppose that velocity is constant and the economy's output of goods and services rises by 3 percent each year. Use this information to answer the questions that follow.

If the Fed keeps the money supply constant, the price level will , and nominal GDP will .

True or False: If the Fed wants to keep the price level stable instead, it should keep the money supply unchanged next year.

True

False

If the Fed wants an inflation rate of 9 percent instead, it should the money supply by

. (Hint: The quantity equation can be rewritten as the following percentage change formula: