Q1: the money supply has growing at 10% per year and the nominal GDP PY has been

growing at
20 % per year. The data area as fallows

2001 2002 2003

M 100 1200 1440

Calculate velocity and the rate at which velocity is growing?

ANS

2001 2002 2003

1000/100 1200/110 1440/121

10% 10.9% 11.9%

We can say that velocity is growing with the average speed of 10%

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Q2 calculate what happens to nominal GDP if velocity remains constant at 5 and money supply
increases from200 billion to 300 billion?

ANS: formula

M.V=P.Y

200×5=P.Y

1000=PY

So we can say that our nominal GDP will also increase

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1
 Is Question mein V or M ki values change ka k banana

Ooper walay jitna ho sakta hai format mein changeor points round off kardo

Q3 what happens to the nominal GDP if the money supply grows by 20% but velocity declines by
30%?

ANS:

Suppose

M= 100

V= 300

So

M×V=P.Y

100.300=PY

30000=PY

And when money supply increases by 10% and velocity decreases by 30%

M=100 =110 by increase of 10%

V=300=210 by decrees of 30 %

M×V=PY

110*210=PY

23100=PY

So we can say that our nominal GDP will fall in this condition

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Q4 if credit cards were made by congressional legislation what happen to velocity explain your
answer?

2
ANS: in my point of view if there will be bane on use of credit cards it will definitely increase the demand
for money and the velocity of money will increase because many of the E transaction would be stop with
the ban imposed on credit cards.

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