Elucidate what money supply should the fed set

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Reference no: EM1349686

Suppose that in year 2008, the money supply is $400 billion, nominal GDP is 9 trillion, and real GDP is $4 trillion.

(a) What is the price level? What is the velocity of money?

(b) Suppose the velocity is constant and the economy's output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?

Reference no: EM1349686

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