Monetary Policy Action Question

Please use the following data for Macroland to answer the questions. This economy at real full employment output is $70 billion.

M = 10 billion

V = 10

P = 2

Y = ? billion

Please solve for Y. (This is the current level of real GDP)

How much is current level of nominal GDP?

How big is the gap in real terms? What type of gap is this economy experiencing?

What type of monetary policy should the FRB adopt to close this gap? How much should the money supply change to close the gap? (other things being equal, hold V and P constant)

Construct an idealized money market and show the change in money supply to close the gap. Next, construct an idealized AD/AS model showing the related change to close the gap.

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