Real GDP is $2,560 billion, the quantity of money $800 billion, and the velocity of circulation is 4.The GDP deflator is
A)3.2.
B)6.4.
C)1,000.
D)125.
E)3,200.

Question

Quizplus · Accepted Answer

The GDP deflator can be calculated using the formula: Nominal GDP = Real GDP x GDP Deflator. Given that the velocity of circulation (V) is 4, we can use the equation of exchange: MV = PY, where M is the money supply, V is the velocity, P is the price level (GDP deflator), and Y is the real GDP. Substituting the given values: 800 x 4 = P x 2,560. Solving for P gives P = 125.

Real GDP Is $2,560 Billion, the Quantity of Money $800