The Velocity of Money in the Small Republic of Sloagia

question 104

Essay

The velocity of money in the small Republic of Sloagia is always the same. Last year, the money supply was $2 billion and real GDP was $5 billion. This year, the money supply increased by 6 percent, real GDP by 4 percent, and nominal GDP is $6.5 billion.
a) Calculate the velocity of money and the price levels in the two years, and then calculate the inflation rate.
b) Calculate the inflation rate using the formula ÄM/M + ÄV/V = ÄP/P + ÄY/Y, where the Greek letter Ä represents a change and the ratio ÄM/M × 100 is the percentage change (or the rate of change) in M. Compare this result with the result you obtained in part
a. Why could there be some difference?

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Definitions:

Slave Masters

Individuals or entities that owned and controlled the lives of enslaved people, a practice particularly prevalent in the American South before the Civil War.

Slave Families

Family units formed by enslaved people, often facing forced separations and conditions aiming to undermine familial bonds.

Scots

People originating from Scotland, a country that is part of the United Kingdom, with a rich cultural heritage including traditions, languages, and historical contributions.

North America

A continent in the Northern Hemisphere and almost entirely within the Western Hemisphere, including countries such as Canada, the United States, and Mexico.