Real GDP is $2,560 billion, the GDP deflator is 125 a price level of 1.25), and the velocity of circulation is 5.The quantity of money is
A)$640 billion.
B)$400 billion.
C)$625 billion.
D)$2,048 billion.
E)$20.48 billion.

Question

Quizplus · Accepted Answer

The quantity of money (M) can be calculated using the equation MV = PY, where M is the quantity of money, V is the velocity of circulation, P is the price level (GDP deflator/100), and Y is the real GDP. Given V = 5, P = 1.25 (125/100), and Y = $2,560 billion, we solve for M: M = PY/V = (1.25 * 2560) / 5 = $640 billion.

Real GDP Is $2,560 Billion, the GDP Deflator Is 125