If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is velocity, P is the average price level, and Y is real output. We can rearrange this equation to solve for velocity:

V = PY/M

Plugging in the given values, we get:

V = (2,500 x R2) / R500
V = 10

Therefore, the statement is true. The velocity of money is 10.

If the Money Supply Is R500, Real Output Is 2,500