2. In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion Nominal int

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2 In 2018 Assume The Economy Was At Full Employment With The Following Economic Data Real Gdp 7 Billion Nominal Int 1 (78.18 KiB) Viewed 24 times

2. In 2018, assume the economy was at full employment with the following economic data: Real GDP: $7 billion Nominal interest rate: 5 percent Price level: 1.5 • Velocity of circulation: 7 Required reserve ratio: 10%. . a. Explain the quantity theory of money and how each side of the equation relates to Nominal GDP. b. Calculate the quantity of money in 2018. c. Assume the central bank made an open market purchase in 2019, increasing the monetary base by $10 million. What is the increase to the money supply? d. In 2019 the velocity of circulation did not change, and real GDP grew by 5%. What was the inflation rate for 2019? e. Create a graph of the money market reflecting the money supply in 2018 and money demanded in 2018. Be sure to define your equilibrium point. Demonstrate the changes to your market in 2019 assuming the money demand curve does not change and nominal interest rate is 3%. I f. Create a graph for the aggregate demand and aggregate supply model in 2018 and define your equilibrium points. Demonstrate the changes to your model in 2019 assuming potential GDP increased by 3%. Identify whether the economy in 2019 is at full employment, is in a recessionary gap, or an inflationary gap.