Final answer:
Given the velocity of 2, output of 42,000, and a price level of 1.00, the real demand for money is found using the equation Money Supply X velocity = Nominal GDP, which results in a real demand for money of 21,000 units of currency.
Step-by-step explanation:
The subject of the question is the quantity theory of money, which posits that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold.
According to the theory, when the amount of money in the economy, or the money supply, increases or decreases, the price level of goods and services will increase or decrease proportionally and the value of currency will inversely fluctuate.
To find the real demand for money, we apply the equation Money Supply X velocity = Nominal GDP = Price Level x Real GDP. Given that the velocity is constant at 2, output (Real GDP) is fixed at 42,000, and the price level is 1.00, we can calculate the nominal GDP as: Price Level x Real GDP = 1.00 x 42,000 = 42,000.
Then, using the velocity of money, we would find the money supply with the formula:
Nominal GDP / Velocity = Money Supply
Hence, 42,000 / 2 = 21,000. Therefore, the real demand for money in this economy is 21,000 units of currency.