Question

let’s focus on the second quarter since the change in velocity is so dramatic. during that quarter, the cpi fell by 0.9%, real gdp fell by 9.0%, the money supply rose by 23%, and velocity changed by_____%. give your answer to one decimal.

Answer 1

The velocity of money changed by -32.9% during the quarter when CPI fell by 0.9%, real GDP fell by 9.0%, and the money supply rose by 23%.

Step-by-step explanation:

To determine the change in the velocity of money, we can use the quantity theory of money, which is represented by the formula MV = PQ, where M is the money supply, V is the velocity of money, P is the price level (which can be indexed by CPI, Consumer Price Index), and Q is the quantity of goods and services produced (real GDP).

From the given scenario, we have the following information:

• Change in CPI (P) = -0.9% (deflation)
• Change in real GDP (Q) = -9.0%
• Change in money supply (M) = +23%

We can calculate the nominal GDP change by adding the percentage change in CPI to the percentage change in real GDP: (-0.9%) + (-9%) = -9.9% (a decrease in nominal GDP).

Using the formula change in Velocity (V) = Change in nominal GDP - change in Money Supply, we can find the change in velocity:

Change in Velocity (V) = -9.9% - 23% = -32.9%

Therefore, the velocity changed by -32.9% during that quarter.