Essay
In 1994, the velocity of money = 3 and the Money Supply = $700 billion. Based on this information answer the following questions. Assume 1994 is the base year.
(a) What are the values of nominal and real GDP for 1994?
(b) If the money supply increases 10% in 1995, what is the effect on nominal GDP, assuming the velocity is constant?
(c) Using the same data from Part (b), if the velocity of money also changes from 3 to 2, now what is the effect on GDP?
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(a) M x V = nominal GDP, thus $700 x 3 =...View Answer
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