n the country of Wiknam, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 8 percent per year, and the nominal interest rate is 9 percent. What is the growth rate of nominal GDP

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Business

Emanuel Lucero

20 November, 07:27

n the country of Wiknam, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 8 percent per year, and the nominal interest rate is 9 percent. What is the growth rate of nominal GDP

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Jordan Dunn · Answer 1

Nominal GDP will grow by 8%

Explanation:

Gross domestic product is defined as the total monetary value of goods and services that are produced in a country in a given period. Nominal GDP considers current prices, while real GDP is adjusted for price changes such as change due to inflation.

The formula relating money supply and nominal GDP is

Money supply * velocity of money = nominal GDP

Since velocity of money is constant, money supply is directly proportional to nominal GDP. A 8% increase in money supply will result in 8% increase in nominal GDP.