When a nation has a money supply of 4,000,a money velocity of 2,and a GDP of 800,the price level is 100.

Question

Quizplus · Accepted Answer

The equation of exchange, MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP, can be used to calculate the price level. Given M = 4000, V = 2, and Q (real GDP) = 800, we can solve for P. MV = PQ gives 4000 * 2 = P * 800. Solving for P gives 8000/800 = 10, not 100.

When a Nation Has a Money Supply of 4,000,a Money