If the velocity of money is 5, real GDP is 200 and the money supply is 120, what are average prices?
A) 0.3
B) 12
C) 3.0
D) 1.2
E) 8.3

Name: If the velocity of money is 5, real GDP is 200 and the money supply is 120, what are average prices? A) 0.3 B) 12 C) 3.0 D) 1.2 E) 8.3
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Question

Quizplus · Accepted Answer

The equation of exchange is MV=PY. 
In this case, V=5, M=120, and Y=200. 
Solving for P, P=MV/Y= (120*5)/200 = 3.0. 
Therefore, the average prices are 3.0.

If the Velocity of Money Is 5, Real GDP Is