VIPSolutionsgive answer in 2 step with explanation at the end of each step and final answer at the end:A central bank is reviewing monetary conditions to control excess demand. The money supply is $800 billion and velocity of money is 4.5. Later, expansionary policy raises money supply to $900 billion while velocity remains constant. Part one requires calculating nominal GDP initially, and part two asks for the new nominal GDP and the absolute change.
Question:
give answer in 2 step with explanation at the end of each step and final answer at the end:A central bank is reviewing monetary conditions to control excess demand. The money supply is $800 billion and velocity of money is 4.5. Later, expansionary policy raises money supply to $900 billion while velocity remains constant. Part one requires calculating nominal GDP initially, and part two asks for the new nominal GDP and the absolute change.
This is AI generated Response.
Asked by: Rahul
Created at: 2025-12-16 04:08:52
Asked by: Rahul
Created at: 2025-12-16 04:08:52
Final Answer:
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# Step 1: Calculate Initial Nominal GDP
The formula for nominal GDP using the quantity theory of money is:
\[
\text{Nominal GDP} = \text{Money Supply} \times \text{Velocity of Money}
\]
Plug in the initial values:
\[
\text{Nominal GDP} = \$800 \text{ billion} \times 4.5 = \$3,600 \text{ billion}
\]
**Explanation:**
The nominal GDP is calculated by multiplying the initial money supply (\$800 billion) by the velocity (4.5).
---
# Step 2: Calculate New Nominal GDP and Absolute Change
After expansionary policy, the new money supply is \$900 billion, velocity is unchanged at 4.5:
\[
\text{New Nominal GDP} = \$900 \text{ billion} \times 4.5 = \$4,050 \text{ billion}
\]
\[
\text{Absolute Change} = \$4,050 \text{ billion} - \$3,600 \text{ billion} = \$450 \text{ billion}
\]
**Explanation:**
With the increased money supply and constant velocity, the new nominal GDP is \$4,050 billion. The absolute change is the difference between new and initial nominal GDP, which is \$450 billion.
---
# Final Answers
- **Initial nominal GDP:** \$3,600 billion
- **New nominal GDP:** \$4,050 billion
- **Absolute change:** \$450 billion
Question:
Then solved full answer
This is AI generated Response.
Asked by: Rahul
Created at: 2025-12-16 04:10:02
Asked by: Rahul
Created at: 2025-12-16 04:10:02
Final Answer:
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Did you like this answer?
# Step 1: Calculate Initial Nominal GDP
The formula for nominal GDP using the quantity theory of money is:
\[
\text{Nominal GDP} = \text{Money Supply} \times \text{Velocity of Money}
\]
Plugging in the initial values:
\[
\text{Nominal GDP} = \$800 \text{ billion} \times 4.5 = \$3,600 \text{ billion}
\]
**Explanation:**
The nominal GDP is calculated by multiplying the initial money supply (\$800 billion) by the velocity of money (4.5). This indicates the total economic output at current prices.
---
# Step 2: Calculate New Nominal GDP and Absolute Change
After the expansionary policy, the new money supply is \$900 billion, while the velocity remains constant at 4.5:
\[
\text{New Nominal GDP} = \$900 \text{ billion} \times 4.5 = \$4,050 \text{ billion}
\]
Now, to find the absolute change:
\[
\text{Absolute Change} = \$4,050 \text{ billion} - \$3,600 \text{ billion} = \$450 \text{ billion}
\]
**Explanation:**
With the increased money supply and constant velocity, the new nominal GDP is calculated to be \$4,050 billion. The absolute change from the initial nominal GDP is \$450 billion, reflecting the impact of the expansionary policy.
---
# Final Answers
- **Initial nominal GDP:** \$3,600 billion
- **New nominal GDP:** \$4,050 billion
- **Absolute change:** \$450 billion
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