Question: A country s gross domestic product GDP is 20 billion and

A country’s gross domestic product (GDP) is $20 billion and its money supply (MS) is $5 billion.
a. What is the country’s velocity of money (VM)?
b. If the MS stays at the same level next year while the velocity of money “turns over” 4.5 times, what would be the level of GDP?
c. Assume that the VM will turn over 4 times next year. If the country wants a GDP of $22 billion at the end of next year, what will have to be the size of the money supply? What percentage increase in the MS will be necessary to achieve the target GDP?

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  • CreatedMarch 27, 2015
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