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Item $7$

Problem $15-07($Static$)$

Suppose that an economy is characterized by

M $=$ $$14$ trillion

V $=1\mathrm{.}6$

P $=$ Base index $=1\mathrm{.}0$

Instructions: Round your responses to two decimal places if necessary. If you are entering a decrease, do NOT include a negative sign $()$ with your answer.

What is the real value of output $($Q$)?$

$ trillion

Now assume that the Fed increases the money supply by $10$ percent and velocity remains unchanged.

If the price level remains constant, by how much will real output increase?

$ trillion

If instead real output is fixed at the natural level of unemployment $(=$ Q from part a$),$ by how much will prices rise in percentage terms?

$\%$

By how much would V have to fall to offset the increase in M $($assuming Q and P did not change$)?$