Suppose the nominal money supply is 5000 and real money demand is 2500.What is the price level?

Question

Quizplus · Accepted Answer

The equation of exchange is MV=PY, where M is the nominal money supply, V is the velocity of money (assumed constant), P is the price level, and Y is real output. Rearranging the equation, we get P=MV/Y. In this case, if M=5000 and real money demand is 2500, then velocity (V) equals to 2 (since V=M/PY). Therefore, P=5000/2=2500, which implies a price level of 2.

Suppose the Nominal Money Supply Is 5000 and Real Money