If the money velocity is 5, the amount of money in circulation $200 million and real GDP $10 million, then prices are ________.
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A. B. C. D.D
According to the equation of exchange which is defined as MV = PY we must solve for P in the following way: ($200 million x 5) = ($10 million x P). This implies that P=100.
To determine the prices using the quantity theory of money, we can use the equation:
Money Supply (M) * Velocity of Money (V) = Price Level (P) * Real Gross Domestic Product (GDP)
Given information: Money velocity (V) = 5 Amount of money in circulation (M) = $200 million Real GDP = $10 million
Substituting the given values into the equation, we have:
$200 million * 5 = P * $10 million
Simplifying the equation, we can cancel out the units of millions:
1000 * 200 * 5 = P * 10
Now, let's solve for the price level (P):
1000 * 200 * 5 = P * 10
1,000,000 = P * 10
Dividing both sides by 10:
1,000,000 / 10 = P
100,000 = P
Therefore, the price level (P) is $100,000.
However, none of the provided answer choices match the calculated price level. It seems that there might be an error in the answer choices. Please double-check the answer choices or provide any additional information you may have so that I can assist you further.