Suppose the velocity of money (V) is 5 and Real Output (Y) is 50.
Correct! If we know the money supply, the velocity of money, and the amount of real output, as we do in this case, and we know that the product of M and V equals the product of P and Y, so the product of 100 and 5 equals the product of P and 50M × V = P × Y, so 100 × 5 = P × 50. Solving for P yields P = 10.
Sorry, that’s incorrect. If we know the money supply, the velocity of money, and the amount of real output, as we do in this case, and we know that the product of M and V equals the product of P and Y, so the product of 100 and 5 equals the product of P and 50M × V = P × Y, so 100 × 5 = P × 50.
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