Question

assume we had a simple economy that only produced mangoes. the velocity of money is 50 and 1000 mangoes are produced. what must be true for the price if the quantity of money increases from 400 to 800? (assume everything else stays constant)

Answer 1

The following must be true;

The price must increase by 100%

and;

The price of mangoes goes up from $20 to $40

Step-by-step explanation:

Here, we are to state what must be correct given the information in the question.

For correct appraisal of the task at hand, we calculate the change using the equation of change.

Mathematically;

The equation of change is as follows

MV=PY

where;

M=money supply , P=price level ,Y=output and V=velocity

From the question, we identify the following;

M=400

When M = 400,

then

400*50=1000P

P=20000/1000=20

When M=800

then

800*50=1000P

P=40000/1000=40

%change =(40-20)/20=1=100%