If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?
P = MV/Y. With the numbers given, P = 12 . When the money supply increases to 25,000, P increases to 15 . Yes, both the money supply and the price level rise by 25%.
Economics
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