Q1. Explain why each of the following statements is True, False, or Uncertain according to economic principles.
Suppose the economy is currently operating with a recessionary gap. If the government does nothing with regard to discretionary policy changes, national income will never recover to its potential level.
Q2. In 1947, real GDP (2005 base) in the US was 1852.7b, the GDP deflator was 13.753, and M2 was $146b. In 2012, real GDP was 13591.1b, the GDP deflator was 115.378, and M2 was $10003.4b. How well does the quantity theory with constant velocity accurately predict the annual inflation rate over this period? What would the annual percentage change in velocity have to be on average for the quantity theory to hold?