Suppose over some period of time the money supply tripled,velocity was unchanged,and real GDP doubled.According to the quantity equation the price level is now
A)6 times its old value.
B)3 times its old value.
C)1.5 times its old value.
D)0.75 times its old value

Question

Quizplus · Accepted Answer

According to the quantity equation MV = PY, if M (money supply) triples and V (velocity) remains unchanged, and Y (real GDP) doubles, then the equation becomes 3M = P * 2Y. Rearranging this equation to solve for P, we get P = (3M) / (2Y). Since M has tripled and Y has doubled, we get P = 3/2 = 1.5 times the old value. Therefore, the correct answer would be B) 3 times its old value.

Suppose Over Some Period of Time the Money Supply Tripled,velocity