In 2019, an economy produces wheat only and has enough labor, capital, and land to produce 500 bushels of wheat (Y or real GDP). The price of wheat and money supply are $2 per bushel and $1,000 respectively. In 2020, the central bank increases the money supply by $ 1040. Suppose both the velocity of money (V) and the amount of wheat produced remain unchanged. 

a. Compute the velocity of money and nominal GDP in 2019. 

b. Calculate the inflation rate in the year 2020. 

C. Use a well-labeled money supply-demand diagram to illustrate and explain what happens to the price level and the value of money after such money injection? 

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In this diagram we find that initially the price of ... View the full answer