If the money supply is $6,000,velocity is 5,and Real GDP is 10,000 units of output,then the price level is _____________.If the money supply doubled over a short time period to $12,000,the simple quantity theory of money would predict that _____________________.

Question

Quizplus · Accepted Answer

The equation of exchange is MV=PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is real GDP. Using this equation, we can calculate that P = (M * V) / Q = (6000 * 5) / 10000 = $3. If the money supply doubled to $12,000, and assuming velocity and real GDP remain constant, the equation of exchange predicts that P = (12000 * 5) / 10000 = $6, which is double the initial price level of $3. Therefore, the correct answer is A.

If the Money Supply Is $6,000,velocity Is 5,and Real GDP