If the money supply is $60 billion, the velocity of money is 7, and real GDP is $336 billion, then the price level equals:

Answer:

$1.25

Explanation:

According to the quantity theory of money

money supply x velocity = real gdp x price

7 x 60 = 336 x p

p -1.25

velocity measures how fast money changes hand in the economy

real GDP is gdp adjusted for inflation

The key metric of the additional value generated by the productive capacity in a country during that period is the gross domestic product (GDP). As a reason, it also accounts for the revenue generated by that production, as well as the overall amount spent on final goods and services.

The correct answer for the price level is equal to $1.25

The quantity theory of money is a way to analyze price fluctuations in relation to a country's money supply. It claims that increasing the money supply hurts the economy and vice versa. The Irving Fisher model is a popular way to put the theory to the test.

According to the quantity theory of money,

[tex]\text{money supply} \times \text{velocity} = \text{real GDP} \times \text{price}[/tex]

[tex]7 \times 60 = 336 \times p[/tex]

price level = $1.25

Therefore, the price level at the given situation or the circumstances is $1.25

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