If the money supply is $2,000,velocity is 4,and Real GDP is 1,000 units of output,then the price level is _____________.If the money supply doubled over a short time period,the simple quantity theory of money would predict that _____________________.

Question

Quizplus · Accepted Answer

The price level can be found using the equation MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP. With M=$2,000, V=4, and Q=1,000, solving for P gives P = (MV)/Q = ($2,000*4)/1,000 = $8. If the money supply doubled, according to the quantity theory of money, if velocity and real GDP remain constant, the price level would also double, maintaining the proportionality in the equation.

If the Money Supply Is $2,000,velocity Is 4,and Real GDP