Fisheria is a country in which the quantity theory of money operates.The country has a constant population, capital stock, and technology. In 2010, real GDP was $300 million, the quantity of money was $60 million and the velocity of circulation of money was 10 million. In 2011, the price level rose by 20 percent.
a. What was the price level in 2010.
b. What was the real GDP in 2011.
c. What was the velocity of circulation in 2011.
d. What was the quantity of money in 2011.
2. Using a Quantity theory of money, show how the quantity of money triggers the inflation in the economy.
3. Suppose the Reserve Bank sells $50 million of government securities to Bank A. Explain and show the effect of this action on the balance sheets of the Reserve Bank and Bank A.