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In the equation of exchange, M x V = P x Q, the P represents ___________________.

Bogdan [553]

Answer:

P in the equation represents Price level

Explanation:

The equation above is referred to as the equation of exchange.

M = money supply, V= velocity of money, P= price level and Q= real output (real GDP)

P × Q gives the nominal GDP while M×V is the effective money supply.

The total value of goods and services available in the economy (represented by the nominal GDP) is equals to the total amount of money available to purchase them (the effective money supply.

The velocity of money is the rate at which money been is used or spent for transaction purposes in the economy. It is assumed to be constant.

For example, If there exist only a $1000 note in the economy, this amount just needs to be spent once to purchase a total nominal GDP of $1000. However, if there exist just one $500 note, then it means the $500 will need to be spent 2 times to purchase the total value of goods worth $1000. The 2 is the velocity of money

This equation is also used to explain the concept of the quantity theory of money.

The theory states that if an economy is operating at the full employment level, an increase in money supply will not impact the real GDP rather it will drive up the price level up. This idea forms the basis of the position of some economists that money supply drives inflation

The assumptions of the theory are as follows:

The velocity of money is constant

The the economy is at the full employment output. This implies that the economy is using all of its productive resources efficiently

3 0

3 years ago

It costs Bonita Industries $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A f

Serga [27]

Answer:

There will be an increase of $6,200 , If the special order is accepted

Explanation:

For computing the net income effect first we have to find out the net income per scale which is a difference between offer purchase price and variable cost per unit

In mathematically,

Net income = Offer purchase price - variable cost per unit

where,

Offer purchase price is $35

And, the variable cost is $12 per unit plus it incur special shipping charges which is also a part of the variable cost.

So, total variable cost = variable cost per unit + Special shipping charges per scale

= $12 + $1

= $13

So, Net income is

= $15 - $13

= $2 per unit

Now for producing the 3100 scales, the net income should be multiply with the production unit

= Net income × Production unit

= 3,100 × 2

= $6,200

Fixed cost is fixed whether the production level changes or not. Thus, it is not be considered.

Hence, there will be an increase of $6,200 , If the special order is accepted

6 0

3 years ago

When do many companies expect to have a net loss

Korolek [52]

When outflow exceeds income.

6 0

3 years ago

Carlos purchased an apartment building on November 16, 2020, for $3,000,000. Determine the cost recovery for 2020.

SSSSS [86.1K]

I’m pretty sure its c

4 0

3 years ago

McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but

ratelena [41]

Answer:

YTM = 6.88%.

YTC = 4.26%.

Explanation:

a. Calculation of Yield to Maturity (YTM)

The bond's Yield to Maturity can be calculated using the following RATE function in Excel:

YTM = RATE(nper,pmt,-pv,fv) .............(1)

Where;

YTM = yield to maturity = ?

nper = number of periods = number of years to maturity = 25

pmt = annual coupon payment = $90 = 90

pv = present value = current bond price = $1,250 = 1250

fv = face value or par value of the bond = 1000

Substituting the values into equation (1), we have:

YTM = RATE(25,90,-1250,1000) ............ (2)

Inputting =RATE(25,90,-1250,1000) into excel (Note: as done in the attached excel file), the YTM is obtained as 6.88%.

Therefore, YTM is 6.88%.

b. Calculation of Yield to Call (YTC)

The bond's Yield to call can be calculated using the following RATE function in Excel:

YTC = RATE(nper,pmt,-pv,fv) .....................(3)

Where;

YTM = yield to call = ?

nper = number of periods = number of years to call = 5

pmt = annual coupon payment = $90 = 90

pv = present value = current bond price = $1,250 = 1250

fv = future value of the bond or the amount at which the bond can be called = $1,050 = 1050

Substituting the values into equation (3), we have:

YTM = RATE(5,90,-1250,1050) ............ (4)

Inputting =RATE(5,90,-1250,1050) into excel (Note: as done in the attached excel file), the YTC is obtained as 4.26%.

Therefore, YTC is 4.26%.

Download xlsx

6 0

2 years ago