If an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be:
A) $1.
B) $5.
C) $2.
D) $10.

Question

Quizplus · Accepted Answer

We can use the equation of exchange, MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is the level of output. Plugging in the given values, we get P = MV/Y = (500 x 10)/2,500 = $2. Therefore, the correct choice is C).

If an Economy Produces 2,500 Units of Output with a Money