Friedmania Is a Country in Which the Quantity Theory of Money

question 110

Essay

Friedmania is a country in which the quantity theory of money operates. The country has a constant population, capital stock, and technology so real GDP does not change. In 2008, real GDP was $500 million, the price level, measured by the GDP deflator, was 150 and the velocity of circulation of money was 10. (Because the price level is measured by the GDP deflator, it must be divided by 100 before it is used in the equation of exchange.) In 2009 the quantity of money increased by 20 percent.
a) What was the quantity of money in 2008?
b) What was the velocity of circulation in 2009?
c) What was the price level in 2009?

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Definitions:

Marketing

Marketing encompasses the strategies and tactics companies use to identify, engage, and satisfy customers' needs and wants, thereby generating sales and fostering brand loyalty.

Separate Legal Entity

A business structure that is legally distinct from its owners, allowing it to own assets, incur liability, and conduct business in its own name.

Corporation

A legal entity formed by individuals, shareholders, or shareholders, recognized as separate from its owners with its own rights and liabilities.

External Users

Individuals or entities outside of a company, such as investors, creditors, and regulatory agencies, who rely on financial statements to make decisions about the company.