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Suppose that velocity is constant. The economy's output of goods and services rises by 5% each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? (Hint--put the variables into the formula)


  • Macroeconomics -

    The formula is MV=PQ, where PQ is the price level time output of goods and services. PQ is nominal GNP. So if M is fixed and V is fixed and Q is 5% higher, what must happen to P.

    That is MV = PQ = (zP)*)*(1.05*Q) -- solve for z

  • Macroeconomics -


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