The level of real output, also known as Real GDP, is calculated using the quantity theory of money. With the given values of money supply, velocity, and price level, the real output is determined to be $700.
To determine the level of real output using the quantity theory of money, we can use the formula: Money Supply x velocity = Nominal GDP = Price Level x Real GDP. Given that the money supply is $700, the velocity of money is 4, and the price level is 4, we can rearrange the formula to solve for the real output (Real GDP).
Nominal GDP is calculated by the formula: Money Supply x velocity. So, Nominal GDP = $700 x 4 = $2800.
Now, to find the Real GDP, we divide the Nominal GDP by the Price Level:
Real GDP = Nominal GDP / Price Level = $2800 / 4 = $700.
Therefore, the level of real output (Real GDP) in this economy is $700.
--The given question is incomplete, the complete question is given below:
" Assume the money supply is $700, the velocity of money is 4, and the price level is 4. Using the quantity theory of money: Determine the level of real output."--