Suppose you are the head of the central bank and your mandate is to maintain the price level at a constant value. Explain what you would do to the money supply in response to each of the following events: (a) Real GDP increases by 4% during a boom. (b) Real GDP declines by 1% during a recession. (c) Real GDP is growing at 3% per year. (d) The velocity of money increases by 2%. (e) The velocity of money declines by 1%. Jones, Charles I.. Macroeconomics (Fourth Edition) (p. 228). W. W. Norton

5. real versus nominal gdp consider a simple economy that produces two goods: cupcakes and muffins. the following table shows the prices and quantities of the goods over a three-year period. year cupcakes muffins price quantity price quantity (dollars per cupcake) (number of cupcakes) (dollars per muffin) (number of muffins) 2014 2 115 5 175 2015 4 150 2 180 2016 1 100 2 160 use the information from the preceding table to fill in the following table. year nominal gdp real gdp gdp deflator (dollars) (base year 2014, dollars) 2014 2015 2016 from 2015 to 2016, nominal gdp , and real gdp . the inflation rate in 2016 was . why is real gdp a more accurate measure of an economy's production than nominal gdp? real gdp does not include the value of intermediate goods and services, but nominal gdp does. real gdp measures the value of the goods and services an economy produces, but nominal gdp measures the value of the goods and services an economy consumes. real gdp is not influenced by price changes, but nominal gdp is.