If real output in an economy is 1,000 goods per year,the money supply is $300,and each dollar is spent an average of 4 times per year,then according to the quantity equation,the average price level is
A)3.33.
B)0.83.
C)1.20.
D)13.33.

Question

Quizplus · Accepted Answer

By the quantity equation, we have: M * V = P * Y,
where M is the money supply, V is the velocity of money, P is the price level, and Y is real output.

Solving for P, we get: P = (M * V) / Y

Plugging in the values given, we get: P = (300 * 4) / 1,000 = 1.2

Therefore, the average price level is $1.20.

If Real Output in an Economy Is 1,000 Goods Per