What will happen on the island of monet in the short run

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The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is real GDP. The island economy of Monet is rather simple. The only good produced in Monet is "Things," and the island is able to produce 1,000 Things each year. Each Thing sells for a price of $40. The money supply consists of 800 one-dollar bills. 6.2. A fire on the island of Monet destroys half of its one-dollar bills. According to classical economists, what will happen on the island of Monet in the short run?

Reference no: EM13213519

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