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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?
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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oh!! srry...and yeah exactly that's the answer..
for first one here is the link..
and here the video.. it will help u understand better
It wont let me watch the whole thing :( And I was on that website invetopedia and I didnt see how to solve it
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
Yes I know that.. But where is nominal money and GDP in the equation? O.o
see money supply is given= 2 billion, real gdp=16 billion, the matter is where is the price level.....! everything else is given
Ohh.. So I can ignore the word nominal.. Okay thank you!