**Economic Theory Practice Question:**Consider the following statement to test your understanding of the classical model of economics:"If the money supply is $200, the velocity of money is 5, and the real GDP is 100, then the price level in the classical model is 10."Evaluate whether this statement is true or false.- [ ] True- [ ] False**Explanation:**The classical model of economics uses the equation of exchange, which is represented as:\[ MV = PY \]Where:- $ M $ = Money supply- $ V $ = Velocity of money- $ P $ = Price level- $ Y $ = Real GDPSubstitute the provided values into the equation to test the statement:\[ 200 \times 5 = P \times 100 \]\[ 1000 = 100P \]Solve for $ P $:\[ P = \frac{1000}{100} \]\[ P = 10 \]Thus, the statement is true.

Given: The money supply is = $200 The velocity of money is = 5 The real GDP is = 100 To Find: If…

Answered: If money supply = $200, velocity of…

If money supply = $200, velocity of money = 5, the real GDP = 100, then the price level in the classical model = 10. %3D %3D %3D O True O False

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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