Asked by Morgan Hooper on May 05, 2024
Verified
If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?
Velocity
In the context of economics, velocity refers to the rate at which money circulates in the economy, moving from one transaction to another.
Real Output
The total value of all goods and services produced by an economy, adjusted for price changes or inflation, representing the actual physical output.
Money Supply
The total amount of money available in an economy at a specific time, including currency and various types of bank deposits.
- Expound on the quantity theory of money and its correlation with inflation.
- Compute inflation figures and comprehend their influence on the economic landscape.
Verified Answer
JS
Jatinder Singh BhullarMay 12, 2024
Final Answer :
P = MV/Y. With the numbers given, P = 12. When the money supply increases to 25,000, P increases to 15. Yes, both the money supply and the price level rise by 25%.
Learning Objectives
- Expound on the quantity theory of money and its correlation with inflation.
- Compute inflation figures and comprehend their influence on the economic landscape.