Chapter 31. Chapter 31 (Chapter 12 Macro)

Introduction

Work It Out

Chapter 31 (Chapter 12 Macro)

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You must read each slide, and complete any questions on the slide, in sequence.

Question

Suppose the velocity of money (V) is 5 and Real Output (Y) is 50.

If the Money Supply (M) is 100, what will be the Price Level (P)?

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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.

1:15

Step 2

Question

If the Money Supply (M) is 150, what will be the Price Level (P)?

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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 150 and 5 equals the product of P and 50M × V = P × Y, so 150 × 5 = P × 50. Solving for P yields P = 15.

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 150 and 5 equals the product of P and 50M × V = P × Y, so 150 × 5 = P × 50.

0:27

Step 3

Question

If the Money Supply (M) is 200, what will be the Price Level (P)?

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1:06

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 200 and 5 equals the product of P and 50M × V = P × Y, so 200 × 5 = P × 50. Solving for P yields P = 20.

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 200 and 5 equals the product of P and 50M × V = P × Y, so 200 × 5 = P × 50.