For the next two questions, assume the following: Quantecon is a country in whic
ID: 1203186 • Letter: F
Question
For the next two questions, assume the following: Quantecon is a country in which the quantity theory of money operates. The country has a constant technology, Population, and capital stock (in other words, real GDP is constant throughout). For the next five questions: M=money supply. V=velocity. P=price level, Y=real output, k=1/V If, in Year 1. real GDP was $480. the price level was 1.00. and the velocity of circulation of money was 6, them If, in year 2. the money supply was 25% higher than in Year 1 then Now assume that the quantity theory of money no longer operates. If. in Year 3. velocity falls to 5 and the money supply is 20% higher than in Year 2. then Which of the following correctly specifies the Quantity Theory of Money (QTM) Which of the following correctly specifics the Quantity Theory of Money (QTM)Explanation / Answer
46.
From the equation MV = PY, we get M / P = Y / V. At equilibrium, Md = M, so Md / P = Y /V = 480/6 = 80.
Md = P x (Md / P) = 1x 80 = 80. The option a is correct.