The neutrality of money revisited

a. Fill in the empty spaces after Year 1 in the chart below:

Year

M

Nominal

Money

Supply

(billions)

gM

Growth

Rate of Nominal

Money Supply

(percent)

P

Price

Level (index)

Year 2 100

Inflation

(percent)

1 380.95 95.2

2 400

3 420 105.0

4 441 110.25

b. What is the growth rate of the nominal money supply

between years 1 and 2, 2 and 3, and 3 and 4?

c. What is the rate of inflation between years 1 and 2, 2 and 3,

and 3 and 4?

d. What is the change in the real money supply between

years 1 and 2, 2 and 3, and 3 and 4?

e. What assumption has been made about real output

growth if this data describe the medium run?