The equation of exchange is given by , where is the money supply, is the velocity of money, is the economy’s price level, and is real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. AD AS 0 1 2 3 4 5 6 12 10 8 6 4 2 0 PRICE LEVEL REAL GDP (Trillions of dollars) AD AS What is the nominal GDP of this economy? $24 trillion $36 trillion $18 trillion $3 trillion $12 trillion $30 trillion If the velocity of money is 3, the money supply in this economy is . Shift the AD curve in the diagram to show the effects of an increase in the money supply. Based on the new price level, what must the new money supply be in the long run if the velocity of money remains at 3? $40 trillion $25 trillion $20 trillion $10 trillion Because , the percentage increase in the price level is the percentage increase in the money supply. This illustrates the .