Given a constant velocity of money, in the short run a 5 percent increase in money supply will translate to a 5 percent increase in

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24-05-2022
Mathematics

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Given a constant velocity of money, in the short run a 5 percent increase in money supply will translate to a 5 percent increase in

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maheshpatelvVT maheshpatelvVT · Answer 1 · 2022-06-02T08:12:54+02:00

In the constant velocity of money, in the short run, a 5 percent increase in money supply will translate to a 5 percent increase in nominal gross domestic product.

What is nominal gross domestic product?

Nominal gross domestic product (GDP) is a size of financial output that does not modify for inflation.

As we know, the equation for the quantity:

M×V = P×Y

Here M is the money supply,

V is the velocity

P is the price level and

Y is the real GDP

∴ P×Y = Nominal GDP

Percent change in M + Percent change in V = Percent change in P×Y

When V is constant, Percent change in V = 0

Percent change in M = Percent change in P×Y = Percent change in Nominal GDP = 5%

Thus, the constant velocity of money, in the short run a 5 percent increase in money supply will translate to a 5 percent increase in nominal gross domestic product.

Learn more about the nominal gross domestic product here:

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