Suppose the supply of money, measured by M1, is $2.4 trillion, output, measured by real GDP, is $16.8 trillion, and the velocity of money is 6.0. Suppose the supply of money increases to $5.0 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.
Anwer
equation of exchange is
MV=PY
M=money supply
V=velocity
P=price level
Y=real GDP
before change P is
P=(2.4*6)/16.8
=0.857142857=0.86
after change
P=(5*6)/16.8
=1.78571429=1.79
the % change =((new P-old P)/old P)*100=((1.78571429-0.857142857)/0.857142857)*100=108.333334
=108.33%
Suppose the supply of money, measured by M1, is $2.4 trillion, output, measured by real GDP,...