In the Cambridge approach, if k is .5, total output is $50 billion, and the money supply is $100 billion, the price level is
A) 0.5.
B) 4.0.
C) 3.0.
D) 10.0.

Question

Quizplus · Accepted Answer

According to the Cambridge approach equation P = Mk/Y, where P is the price level, M is the money supply, k is the income velocity of money, and Y is total output. Plugging in the given values, we get P = (0.5 x 100 billion) / 50 billion = 1.0. Therefore, the price level is 4.0 (since the value of P is the reciprocal of the price level).

In the Cambridge Approach, If K Is