If the nominal GDP decreases by 3% while the money supply increases by 7%: A- th
ID: 1152245 • Letter: I
Question
If the nominal GDP decreases by 3% while the money supply increases by 7%:A- the price level doesn’t change B- the velocity of the money decreases by 10% C- the price level increases by 3% D- the velocity of money increases by 10%
If the nominal GDP decreases by 3% while the money supply increases by 7%:
A- the price level doesn’t change B- the velocity of the money decreases by 10% C- the price level increases by 3% D- the velocity of money increases by 10%
A- the price level doesn’t change B- the velocity of the money decreases by 10% C- the price level increases by 3% D- the velocity of money increases by 10%
Explanation / Answer
Answer is B. The velocity of Money decreases by 10%.
Explanation:
The velocity of Money = Nominal GDP / Money Supply
Velocity = 97 (i.e. 100-3%) / 107 (i.e. 100+7%) = 0.906
Hence decrease by 10% approx