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5 November, 14:10

Calculate what happens to nominal GDP if velocity remains constant at 5 and the money supply increases from $350 billion to $525 billion. Originally, nominal GDP is $ nothing trillion. (Round your response to two decimal places. )

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  1. 5 November, 14:18
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    The nominal GDP is increased by $0.87 trillion

    Explanation:

    For computing the changes in nominal GDP, first we have to compute the old GDP and new GDP, the formula is shown below:

    Old GDP = Velocity of money * old money supply

    = 5 * $350

    = $1.75 trillion

    And, the new GDP equal to

    = Velocity of money * old money supply

    = 5 * $525

    = $2.62 trillion

    So, by increasing the money supply from $350 billion to $525 billion, the nominal GDP also increases from $1.75 trillion to $2.62 trillion.

    Hence, the nominal GDP is increased by $0.87 trillion
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