What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?
What will be an ideal response?
The equation of exchange is MSV = PY, where MS is the money supply, V is the velocity of money, and PY is the nominal GDP. It is an accounting identity, so is not a theory. The equation of exchange becomes the quantity theory of money and prices by assuming that velocity is constant and that real GDP (Y) is stable. Then we have P = (MS)V/Y or that a change in the money supply will lead only to a proportionate change in the price level.
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A firm’s labor input, total output of labor, and product price schedules are given below. If labor is the only variable input, how much labor should the firm employ if the wage rate is $8 per day?
What will be an ideal response?
Suppose buyers in the used car market are willing to pay $6,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 75% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
A. $4,250 B. $4,000 C. $3,750 D. $3,500