Destinyyyy
  • Destinyyyy
Need help with three questions.
Economics - Financial Markets
chestercat
  • chestercat
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Destinyyyy
  • Destinyyyy
Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion. Then, according to the equation of exchange, what is the velocity of money? If the Fed wants to close a recessionary (deflationary) gap (real GDP is less than potential GDP), should it buy or sell government securities? Why?
Destinyyyy
  • Destinyyyy
Destinyyyy
  • Destinyyyy
Second one answer- When the economy is in recessionary gap, the Fed will adopt expansionary monetary policy to increase money supply in the market by buying securities, lowering the reserve rate, and/or decreasing the discount rate.

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anonymous
  • anonymous
oh!! srry...and yeah exactly that's the answer.. for first one here is the link.. http://www.investopedia.com/terms/e/equation_of_exchange.asp
anonymous
  • anonymous
and here the video.. it will help u understand better http://study.com/academy/lesson/the-velocity-of-money-definition-and-circulation-speed.html
Destinyyyy
  • Destinyyyy
It wont let me watch the whole thing :( And I was on that website invetopedia and I didnt see how to solve it
anonymous
  • anonymous
oh!! k :O anyways so every transaction involves 2 way swap: the buyer exchange money for goods and seller exchanges goods fro money.. so basic equation is: M*V=P*Y M=quantity of money, v=velocity ofmoney ,P=avg price level and Y=real GDP
Destinyyyy
  • Destinyyyy
Yes I know that.. But where is nominal money and GDP in the equation? O.o
anonymous
  • anonymous
see money supply is given= 2 billion, real gdp=16 billion, the matter is where is the price level.....! everything else is given
Destinyyyy
  • Destinyyyy
Ohh.. So I can ignore the word nominal.. Okay thank you!

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