Chapter 20: Q 23. (page 548)
What happens to nominal GDP if the money supply grows by but velocity declines by ?
Short Answer
Nominal GDP decreases by.
Chapter 20: Q 23. (page 548)
What happens to nominal GDP if the money supply grows by but velocity declines by ?
Nominal GDP decreases by.
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Get started for freeWhy does the Keynesian view of the demand for money suggest that velocity is unpredictable?
If large budget deficits cause the public to think there will be higher inflation in the future, what is likely to happen to the short-run aggregate supply curve when budget deficits rise?
Go to the St. Louis Federal Reserve FRED database, and find data on the M1 Money Stock (M1SL), M1 Money Velocity (M1V), and Real GDP (GDPC1). Convert the M1SL data series to “quarterly” using the frequency setting, and for all three series, use the “Percent Change from Year Ago” setting for units.
a. Calculate the average percentage change in real GDP, the M1 money stock, and velocity since 2000:Q1.
b. Based on your answer to part (a), calculate the average inflation rate since 2000 as predicted by the quantity theory of money.
c. Next, find the data on the GDP deflator price index (GDPDEF), download the data using the “Percent Change from Year Ago” setting, and calculate the average inflation rate since 2000:Q1. Comment on the value relative to your answer in part (b).
Suppose the money supply has been growing at per year, and nominal GDP, , has been growing at per year. The data are as follows (in billions of dollars):
Calculate the velocity for each year. At what rate is the velocity growing?
Why is Keynes’s analysis of the speculative demand for money important to his view that velocity will undergo substantial fluctuations and thus cannot be treated as constant?
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