Q. Assume that an economy characterized by
M = $6,000 billion
V = 2.5
P = 100
(a) Illustrate what is the real value of output (Q)?
Now assume that the Fed increases the money provides by 10% and velocity remains unchanged.
(b) If the price level remains constant by Explain how more will real output increase?
(c) If, instead, real output is fixed at the natural level of unemployment, by explaining how more will prices rise?
(d) By explaining how more would V have to fall to offset the increase in M?