Question

Question 13 (1 point) Suppose the supply of money, measured by M1, is $3.0 trillion, output, measured by real GDP, is $18.7 trillion, and the velocity of money is 7.1. Suppose the supply of money increases to $3.7 trillion but GDP and the velocity of money do not change. What is the percent by which prices change? Provide your answer as a percentage rounded to two decimal places. Do not include any symbols, such as "$," ", " "%," or "," in your answer. Your Answer: Answer

Answer 1

Answer:

We know that mv = py

money supply = $3 trillion

velocity = 7.1

real gdp (y) = $18.7 trillion

p = ?

Initial price level = mv / y = (3 * 7.1 ) / 18.7 = 1.1390

Now when the money supply increases to $3.7 trillion

New price level = mv / y = (3.7 * 7.1) / 18.7 = 1.4048

Price change percentage = ( (new price level - initial price level) / initial price level ) * 100

Price change percentage = ( ( 1.4048 - 1.1390 ) / 1.1390 ) * 100

Price change percentage = ( 0.2658 / 1.1390 ) * 100

Price change percentage = 0.23336 * 100

Price change percentage = 23.33%

Hence the change in price level percentage is 23.33 percent.