If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level isA. 3.33. B. 13.33. C. 0.83. D. 1.20.

Question

Deacon

Business

9 March, 07:23

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level isA. 3.33. B. 13.33. C. 0.83. D. 1.20.

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Answers (1)

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Heath Mclaughlin · Answer 1

D. 1.20.

Explanation:

300 dollars x 4 multiplier = 1,200 dollars in the economy.

There are 1,000 goods in the whole economy

1,200 dollar purchase 1,000 goods

on average: $1,200 / 1,000 units = $1.20/per unit

with 1.20 dollar you can purchase a single good

Notice: this means average is 1.20 dollars it do not implies all goods are worth 1.20 dollars