Suppose that this year's money supply is $600 billion, nominal GDP is $15 trillion, and real GDP is $3 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 4 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 8 percent instead, it should _____the money supply by_________.

. (Hint: The quantity equation can be rewritten as the following percentage change formula: (PercentageChangeinM)+(PercentageChangeinV)=(PercentageChangeinP)+(PercentageChangeinY)PercentageChangeinM+PercentageChangeinV=PercentageChangeinP+PercentageChangeinY.)