Question

Consider the following hypothetical data for 2016 and 2017:

2016 2017
Money supply 2,000 2,200
Velocity 5 5
Real GDP 15,000 15,000
1. The price levels for 2016 and 2017 are ___________.
Enter your responses rounded to two decimal places.

Answer 1

The price levels for 2016 and 2017 can be calculated using the equation: Money supply x velocity = Nominal GDP = Price Level x Real GDP.

Step-by-step explanation:

To find the price levels for 2016 and 2017, we can use the equation: Money supply x velocity = Nominal GDP = Price Level x Real GDP. From the given data, we have the money supply for 2016 as 2,000 and the money supply for 2017 as 2,200. The velocity is the same in both years, which is 5. The real GDP is also the same in both years, which is 15,000. Plugging these values into the equation, we can solve for the price levels:

2016: 2,000 x 5 = Price Level x 15,000

Price Level for 2016 = (2,000 x 5) / 15,000 = 0.6667 (rounded to two decimal places)

2017: 2,200 x 5 = Price Level x 15,000

Price Level for 2017 = (2,200 x 5) / 15,000 = 0.7333 (rounded to two decimal places)

Answer 2

$0.67 and $0.73

Step-by-step explanation:

The computation of the price levels for the year 2016 and 2017 is shown below:

For the year 2016

= (Money supply × velocity) ÷ (Real GDP)

= (2,000 × 5) ÷ (15,000)

= $0.67

And, for the year 2017, it would be

= (Money supply × velocity) ÷ (Real GDP)

= (2,200 × 5) ÷ (15,000)

= $0.73

We simply multiplied the money supply with the velocity and then divided it by the real GDP so that the price level could come