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AP Macroeconomics Pol 3 A a Explain Using Graphs As Appropriate How Inflation Is a Monetary Phenomenon B Define the Quantity Theory of Money C Questions

Apply MV=PY and its growth-rate form to calculate monetary variables and explain why sustained money growth determines long-run inflation.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • rearrange MV=PY to calculate money supply, velocity, price level, or real output
  • use nominal GDP and money supply to calculate velocity or infer its direction of change
  • apply the growth-rate quantity equation to money growth, inflation, velocity, and real growth
  • explain long-run money neutrality: money changes prices but not full-employment real output
  • link sustained rapid money growth to inflation or hyperinflation

AP Macroeconomics Pol 3 A a Explain Using Graphs As Appropriate How Inflation Is a Monetary Phenomenon B Define the Quantity Theory of Money C Questions question 1

[Maximum number: 2]

Assume that commercial banks must hold a minimum of 20% of their deposits as reserves. Now suppose that the central bank of the country sells $100,000 of government bonds to commercial banks.

Question (a)

(a)

Given the change in the money supply in part (a), if the velocity of money is constant, what will happen to the nominal gross domestic product? Explain.

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Question (b)

(b)

Based on the change in the nominal gross domestic product in part (c), what happens to the price level if the real gross domestic product is constant?

Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.

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