Suppose that an economy is characterized by:

M = $2 trillion

V = 1.3

P = 1.0 (the base index 100)

1. What is the real value of output (Q)? Enter your response as a whole number. _______billion

2. Now assume that the Fed increases the money supply by 10% and the velocity remains unchanged. If the price level remains constant, by how much will real output increase? (note use the following formula)   %change= (New Value-Original Value)/Original Value          _______%

3. If instead, real output is fixed at the natural level of unemployment, by how much should/will prices rise?   _______%

4. By how much would V have to fall to offset teh increase in M? (Enter your response as a positive number rounded to two decimal places (do not include a (-) negative sign).