Question

Need help with three questions.

Answer 1

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?

Answer 2

@aryandecoolest

Answer 3

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.

Answer 4

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

Answer 5

and here the video.. it will help u understand better

http://study.com/academy/lesson/the-velocity-of-money-definition-and-circulation-speed.html

Answer 6

It wont let me watch the whole thing :( And I was on that website invetopedia and I didnt see how to solve it

Answer 7

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

Answer 8

Yes I know that.. But where is nominal money and GDP in the equation? O.o

Answer 9

see money supply is given= 2 billion, real gdp=16 billion, the matter is where is the price level.....! everything else is given

Answer 10

Ohh.. So I can ignore the word nominal.. Okay thank you!