Final answer:
The total increase in nominal GDP from a 50% rise in the velocity of money, on a $100 billion increase in money supply, will be $150 billion. This is calculated by taking the money supply multiplied by the new velocity, and then subtracting the initial contribution of the money supply by the initial velocity to find the net increase.
Step-by-step explanation:
Understanding the Increase in Nominal GDP Due to Increased Velocity of Money
To determine the total increase in nominal GDP resulting from a 50% increase in the velocity of money due to monetary stimulus, we need to refer to the formula MV = PQ, where M stands for the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced (real GDP). We are given the initial velocity of money as 3 (from question 40), and knowing that it will increase by 50%, the new velocity becomes 4.5. If we assume that the money supply M increased by $100 billion (from question 40), the additional nominal GDP generated by this increase in velocity (multiplied by the new money supply) can be calculated as:
$100 billion × 4.5 = $450 billion
However, since nominal GDP is measured by the product of the current money supply and the velocity, we should subtract the initial contribution of the new money at the old velocity to find the net increase in nominal GDP:
$100 billion × 3 = $300 billion
So, the total increase in nominal GDP due to the increased velocity alone is:
$450 billion - $300 billion = $150 billion
Therefore, none of the options provided (a. $100 billion, b. $200 billion, c. $300 billion, d. $400 billion) correctly represent the total increase in nominal GDP based on the provided question.