Scenario: The Quantity Theory of Money Suppose that the money supply is equal to $10 billion and the velocity of money is 6. If the aggregate price level is 4, then the nominal GDP is:
A) $15 billion.
B) $60 billion.
C) $20 billion.
D) $10 billion.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, MV = PQ, where M is the money supply, V is the velocity of money, P is the aggregate price level, and Q is the real GDP. Solving for Q, we get Q = MV/P. Plugging in the given values, we get Q = (10 billion x 6)/4 = $15 billion. However, this is the real GDP. To get the nominal GDP, we need to multiply this by the aggregate price level, so we get nominal GDP = $15 billion x 4 = $60 billion. Therefore, the answer is B.

Scenario: the Quantity Theory of Money Suppose That the Money