What the fed must do to the money supply

Reference no: EM13198551

The money supply = $1T, nominal GDP = $20T and real GDP = $16T.
a. Showing your calculation, the price level = _________________.
b. Velocity = ____________________.
c. Suppose we hold velocity constant and real output rises by 10%. If the Fed holds the money supply constant, show your calculation for what happens to nominal GDP and the Price level.
d. By solving the quantity formula for P in the foregoing scenario, show what the Fed must do to the money supply (M) to keep the price level constant.

e. On the other hand, suppose that the Fed has a goal of 10% inflation. Use similar logic as in the previous question to show what the Fed must do to the money supply.

Reference no: EM13198551

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