In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is the velocity, P is the price level, and Y is the real GDP. Plugging in the values: $400,000 * 3 = 1 * Y, we get Y = $1,200,000.

In a Small Economy, the Money Supply Is $400,000, and the Velocity