If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:
A)10.
B)20,000.
C)200,000.
D)2,000,000.

Question

Quizplus · Accepted Answer

Real balances, or the purchasing power of the money supply, can be found by dividing the quantity of money by the average price level in the economy. Therefore, real balances = $200,000/$10 = $20,000.

If the Average Price of Goods and Services in the Economy