In a given economy, the supply of money is £10 billion; the velocity of circulation of money (spent on final goods and services) is 3; and the price i
In a given economy, the supply of money is £10 billion; the velocity of circulation of money (spent on final goods and services) is 3; and the price index is 2.00.
\r\n(a) What is the level of real national income?
\r\n(b) How much have prices risen (in percentage terms) since the base year?
\r\n(c) Assume that money supply increases by 10 per cent and that the velocity of circulation remains constant. What will be the rate of inflation if (i) there is no increase in real national income; (ii) real national income increases by 10 per cent; (iii) real national income increases by 5 per cent?