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Price level is fixed & Fed increases money supply by 10% to $2.2 trillionHow much...
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The quantity theory of money states that:
Money supply*Money velocity = Price Level*Quantity
Price level*Quantity = real GDP
Therefore, assuming that the price level is fixed and the money velocity is fixed, real GDP will increase by 0.2 trillion or $200 billion. Here is the math:
2.2 trill / 1.1 = 2 trill (how much we started with)
2.2 trill - 2 trill = 0.2 trillion
Posted by apushstudent on January 15, 2013 at 3:43 AM (Answer #1)
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