1. Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion and $336 billion, respectively.

What is the velocity of money? How will households and businesses react if the central bank reduces the money supply by $20 billion? By how much will nominal GDP have to fall to restore equilibrium, according to the monetarist perspective?

LO39.1 v2. Assume the following information for a hypothetical economy in year 1: money supply = $400 billion; long-term annual growth of potential GDP = 3 percent; velocity = 4. Assume that the banking system initially has no excess reserves and that the reserve requirement is 10 percent. Also suppose that velocity is constant and that the economy initially is operating at its full-employment real output. LO39.1

a. What is the level of nominal GDP in year 1?

b. Suppose the Fed adheres to a monetary rule through openmarket operations. What amount of U.S. securities will it have to sell to, or buy from, banks or the public between years 1 and 2 to meet its monetary rule?