Question

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Select one:
a. M = 500, V = 4
b. M = 1500, V = 3
c. M = 2000, V = 2
d. M = 500, V = 1

Answer 1

The correct pair of values for M and V given P = 2 and Y = 1000 is found using the quantity equation of money, MV = PY. Plugging in the given values leads to the conclusion that the only pair satisfying the equation is M = 500 and V = 4.The correct option is a.

Step-by-step explanation:

The question involves solving for the correct pair of values for M (Money Supply) and V (Velocity of Money) given values of P (Price Level) and Y (transaction volume), described by the quantity equation of money, which is MV = PY. Given that P = 2 and Y = 1000, we aim to find the pair (M, V) that satisfies the equation.

Using the initial conditions of V = 3, M = 4,000, and P = 100, we can find the transaction volume (Q) by rearranging the formula to Q = MV / P.

Applying this to the options given:

• For option a, M = 500 and V = 4, the equation becomes 500*4 = 2*1000, or 2000 = 2000, which is true.
• Option b through d do not satisfy the equation when P = 2 and Y = 1000.

Therefore, the possible pair of values given P = 2 and Y = 1000 is M = 500, V = 4.