Suppose velocity is constant at 3,real output is 6000,and the price level is 20.From this initial situation,the government increases the nominal money supply to $50,000.If velocity and output remain unchanged,by how much will the price level increase?

Question

Quizplus · Accepted Answer

Using the quantity theory of money equation (M x V = P x Y), we can solve for the new price level:

$50,000 x 3 = P x 6000

P = $75

Therefore, the price level has increased from $20 to $75, which is an increase of 25%.

So the best choice is (C), 25%.

Suppose Velocity Is Constant at 3,real Output Is 6000,and the Price