If the velocity of money is 3, the money supply in this economy is $18 trillion/
ID: 1202307 • Letter: I
Question
If the velocity of money is 3, the money supply in this economy is $18 trillion/$24 trillion/$30 trillion/$36 trillion/$2 trillion/$12 trillion
Please provide a graphic solution to the above graph. Thank you
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where M is the money supply, V is the velocity of money, P is the economy's price level, and The equation of exchange is given by M× V = PX Q is real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. 18 15 AD 12 AS 8 10 12 REAL GDP (Trillions of dollars)Explanation / Answer
1. Nominal GDP = Real GDP*P = 9*6 = $54 trillion
2. 3*Ms = 54 , So Money Supply = 54/3 = $18 trillion
3. Shift the AD to the right such that it the AS at P = 15
So , 3*Money supply = 15*6
Hence Money supply = 30 trillion
4. a. Velocity is assumed to be constant, b.) is the same as , c) Simple quantity theory of money
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