Suppose that this year’s money supply is $50 billion, nominal GDP is $1 trillion, and real GDP is $500 billion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?c. What money supply should the Fed set next year if it wants to keep the price level stable?d. What money supply should the Fed set next year if it wants inflation of 10 percent?
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