If velocity and output are fixed at 5 and 400, respectively, and the price level is 2, then the money supply is
A) 4,000.
B) 200.
C) 160.
D) 40.

Question

Quizplus · Accepted Answer

The quantity equation of money states that MV = PQ, where M is the money supply, V is velocity, P is the price level, and Q is output. Rearranging the equation to solve for M, we get M = PQ/V.

Substituting the given values, we get M = (2)(400)/5 = 160. Therefore, the answer is C) 160.

If Velocity and Output Are Fixed at 5 and 400