What is the price level in New Island, knowing the following?Money Supply = 2,000V = 4Y = 1,000
Question
What is the price level in New Island, knowing the following?
- Money Supply = 2,000
- V = 4
- Y = 1,000
Solution
The question is asking for the price level in New Island. This can be calculated using the equation of exchange in economics, which is MV = PY.
Here, M (Money Supply) = 2,000 V (Velocity of Money) = 4 Y (Real GDP) = 1,000
We need to find P (Price Level).
Rearranging the equation to solve for P, we get P = (M*V) / Y.
Substituting the given values into the equation, we get P = (2,000 * 4) / 1,000.
So, P = 8,000 / 1,000 = 8.
Therefore, the price level in New Island is 8.
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