Macroeconomics 11th Edition by Michael Parkin

Exercise 4

Quantecon is a country in which the quantity theory of money operates. In year 1, the economy is at full employment and real GDP is $400 million, the GDP deflator is 200 (a price level is 2), and the velocity of circulation is 20. In year 2, the quantity of money increases by 20 percent. Calculate the quantity of money, the GDP deflator, real GDP, and the velocity of circulation in year 2.