If nominal GDP equals $10 trillion and the velocity of circulation is 5, then
A) the quantity of money is $2 trillion.
B) the real value of the quantity of money is $10 trillion.
C) the quantity of money is $50 trillion.
D) real GDP is $2 trillion.

Question

Quizplus · Accepted Answer

The quantity theory of money states that MV = PY, where M is the quantity of money, V is the velocity of circulation, P is the price level, and Y is real GDP. Given nominal GDP (PY) is $10 trillion and V is 5, M = PY/V = $10 trillion / 5 = $2 trillion.

If Nominal GDP Equals $10 Trillion and the Velocity of Circulation