Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ________ in Alpha than in Beta.
A)the rate of inflation is greater
B)the money stock is smaller
C)the price level is greater
D)the velocity is lower

Question

Quizplus · Accepted Answer

This comes from the Quantity Equation which says: P × Y = M × V and M = P × Y/V. In this case, both countries have the same PY. In Alpha, V is larger than it is in Beta. Therefore, M has to be smaller in Alpha than Beta.

Two Countries, Alpha and Beta, Have the Same Levels of Nominal