Assume that M is $500 billion and V is 5. What is the level of nominal GDP according to the monetarist equation? If V rises by 10%, then according to the monetarist equation, what will be the new level of nominal GDP?
What will be an ideal response?
5 times $500 billion = $2500 billion GDP. If V rises by 10% to 5.5, then the new level of GDP should rise by 10% to $2750 billion or 5.5 times $500 billion = $2750 billion.
Economics
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