Scenario: The Velocity Equation Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2. If the velocity of money is 2, the money supply is:
A) $20 trillion.
B) $10 trillion.
C) $5 trillion.
D) $40 trillion.

Question

Quizplus · Accepted Answer

The velocity equation is MV=PQ, where M is the money supply, V is the velocity of money, P is the aggregate price level, and Q is real GDP. Rearranging the equation, we get M= PQ/V. Plugging in the given values, we get M = (2*$10 trillion)/2 = $10 trillion. Therefore, the correct answer is option B, $10 trillion.

Scenario: the Velocity Equation Suppose That Real GDP Equals $10