If an economy produces 4,000 units of output when the price level is $2 and the velocity of money is 8, what is the money supply?
A) $1,000
B) $8,000
C) $2,000
D) $4,000

Question

Quizplus · Accepted Answer

The money supply can be calculated using 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 quantity of output. Here, V = 8, P = $2, and Q = 4,000 units. So, 8M = 2 * 4,000. Solving for M gives M = $1,000.

If an Economy Produces 4,000 Units of Output When the Price