Question

Please help solve: Suppose that initially the money supply is $1 trillion , the price level equals 3, the real GDP is $5 trillion in based-year dollars, and income velocity of money is 15. Then the money supply increases by $100 billion, while real GDP and income velocity of money remain unchanged. How do I solve using the MsV=PY formula?

Answer 1

initially;
MV=PY
M= 1 trillion
V=15
P=3
Y=5 trillion

1x15=3x5

Then;
money supply increases to 1.1 trillion, velocity and GDP remain unchanged. Then you need to find the change in price level in this equation.
1.1x15=Px5

P=3.3 price level increased by 0.3

Answer 2

THANK YOU!! I didn't add the two money supply together. Now I am clear. thank you again!!