Assume that real money demand (M/P) is related to income as follows: (M/P)D = .04Y a....

 

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Assume that real money demand (M/P) is related to income as follows: (M/P)D = .04Y a. What is the velocity of money in this case? b. Suppose nominal money supply (M) equals 100. What is the value of nominal GDP? c. What would happen to the price level if people started holding five percent of their income in the form of money, rather than four percent (increase, decrease or no effect)? Explain. Assume that real money demand (M/P) is related to income as follows: (M/P)D = .04Y a. What is the velocity of money in this case? b. Suppose nominal money supply (M) equals 100. What is the value of nominal GDP? c. What would happen to the price level if people started holding five percent of their income in the form of money, rather than four percent (increase, decrease or no effect)? Explain.

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Answer a The velocity of money V is defined as the number of times a unit of currency is used to pur... View the full answer