If the stock of money is $20 billion, velocity is 4, and real output is $40 billion, what is the price level?
A) 0.5
B) 2
C) 8
D) 320

Question

Quizplus · Accepted Answer

The price level can be calculated using the equation of exchange: MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real output. Given M = $20 billion, V = 4, and Q = $40 billion, we can solve for P: P = MV/Q = ($20 billion * 4) / $40 billion = $2.

If the Stock of Money Is $20 Billion, Velocity Is