If an economy produces 3,000 units of output with a price level of $2 and with a velocity of money of 12, we know that the money supply must be:
A) $1,000.
B) $500.
C) $2,000.
D) $4,000.

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 the quantity of output. Plugging in the values: M * 12 = 2 * 3,000. Solving for M gives M = 500.

If an Economy Produces 3,000 Units of Output with a Price