ECON 1BB3 Chapter 27: CHAPTER 27
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4. Velocity and the quantity equation
Consider a simple economy that produces only cell phones. The following table contains information on the economy's money supply, the velocity of money, price level, and output. For example, in 2011, the money supply was $240, the price of a cell phone was $7.20, and the economy produced 500 cell phones.
Fill in the missing values in the following table, rounding to the nearest cent when necessary.
Year | Quantity of Money | Velocity of Money | Price Level | Quantity of Output | Nominal GDP |
---|---|---|---|---|---|
(Dollars) | (Dollars) | (Cell phones) | (Dollars) | ||
2011 | 240 | 7.20 | 500 | (66.00/3,780.00/69.00/3600.00) | |
2012 | 252 | 15 | (0.53/0.50/7.56/7.20) | 500 | (3780/3600/66/69) |
The money supply grew at a rate of (5%/105%/2.44%/1.44%) from 2011 to 2012. Since cell phone output did not change from 2011 to 2012 and the velocity of money (increased/decreased/remained the same), the change in the money supply was reflected (partially/entirely) in changes in the price level. The inflation rate from 2011 to 2012 was (5%/2.44%/1.44%/105).