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Help with price level calculation :(

Struggling with this, Im really not sure where to go.

This years money supply - $600
Nominal GDP - $12000
Real GDP - $4000

1. Calculate the price level -- Okay I know how to do this one, its 12000/4000, which is 3? Is that correct?

2. Calculate the velocity of the market -- I used the formula V = (P * Y)/M, which gave me the answer of V = (3*4000)/600, V = 60? Is that correct?

Now this is the part Im stuck, any help will be appreciated.

3. Suppose that velocity is constant and the economy's output of goods and services rises by 10% each year.

(a) What will happen to nominal GDP and the price level the next year if the Reserve Bank keeps the money supply constant?

(b) If the reserve bank wants to keep the price level stable, what money supply should the reserve bank set?

(c) What money supply should be set if it wants inflation of 10%?

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Im stuck with question 3, could someone please help me. Thanks. :frown:

anyone?

first off, V = 60 is wrong, its 20.

well, if velocity is constant and money supply is constant, then we have;

20 = P*Y / 600, so P*Y = 3 * 4,000 . Y goes up by 10% (given in question) so P*4,400 = 12,000 so P = 12,000/4,400 = 2.7272

so price goes down and nominal GDP stays constant.

b) since 20 = P*Y/M and Y goes up, P stays constant we have 20 = 3*4,400/M so just rearrange.

c) 20 = 3.3*4,400/M again just rearrange.