Assume the money supply is $500, the velocity of money is 8, and the price level is $2. Using the quantity theory of money:

a. Determine the level of real output.

b. Determine the level of nominal output.

c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent?

d. If the government established price controls and also raised the money supply 20 percent, what would happen?

e. How would you judge whether the assumption of fixed velocity is reasonable? LO3