Question

Assume the money supply is $800, the velocity of money is 8, and the price level is 2. Using the quantity theory of money: a. Determine the level of real output.

Answer 1

3200

Step-by-step explanation:

The computation of the level of real output is given below;

We know that

Money supply × velocity of money = Price level × Real output

And,

Nominal output = Price level × real output.

Now

a) level of real output = money supply × velocity of money ÷ price level

= 800 × 8 ÷ 2

= $6400 ÷ 2

= 3200