Answer:
We know that mv = py
money supply = $3 trillion
velocity = 7.1
real gdp (y) = $18.7 trillion
p = ?
Initial price level = mv / y = (3 * 7.1 ) / 18.7 = 1.1390
Now when the money supply increases to $3.7 trillion
New price level = mv / y = (3.7 * 7.1) / 18.7 = 1.4048
Price change percentage = ( (new price level - initial price level) / initial price level ) * 100
Price change percentage = ( ( 1.4048 - 1.1390 ) / 1.1390 ) * 100
Price change percentage = ( 0.2658 / 1.1390 ) * 100
Price change percentage = 0.23336 * 100
Price change percentage = 23.33%
Hence the change in price level percentage is 23.33 percent.
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