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Chapter 16: Q.10 (page 369)

Consider the following data: The money supply is \(1 trillion, the price level equals 2, and real GDP is \)5 trillion in base-year dollars. What is the income velocity of money?

Short Answer

Expert verified

income velocity of money is$2trillion

Step by step solution

01

introduction

It is the times one unit of money can be utilized to enjoy the labour and products bought and spent per unit throughout some undefined time frame.

02

explanation 

We know,

The money supply is$1trillion, the price level equals 2, and real GDP is%5trillion in base-year dollars

Using MV=PY,

it would prompt an increment of the money supply by $2trillion.

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Most popular questions from this chapter

Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all of its policy instruments except interest on reserves, what should the Fed do with its policy tools?

Suppose that the quantity of money in circulation is fixed but the income velocity of money doubles. If real GDP remains at its long-run potential level, what happens to the equilibrium price level?

Take a look at Figure 16-6. Suppose that a multiple reduction in GDP is the final outcome that the Fed desires in the last box in the figure. Explain the required directions of efforts - that increases or decreases - that most occur in the preceding boxes in the figure in order to yield in this desired decrease in real GDP

Why might the fact that private economic forecasters compete to sell their services help to constrain behavioural tendencies for too much optimism in projections of real GDP growth? Explain your reasoning.

Why do you suppose that corporate cash holdings have decreased slightly since 2015?
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