If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. Plugging in the values given, we get:
(5)($200 million) = P($250 million)
$1 billion = P($250 million)
P = $1 billion ÷ $250 million
P = 4.00, which means the price level of the country must be 4.00.

If the Money Supply in a Country Is $200 Million