The quantity theory of money implies that the money supply times the velocity of money equals:
A) real GDP.
B) the quantity of goods and services.
C) the price level.
D) nominal GDP.

Question

Quizplus · Accepted Answer

The quantity theory of money is represented by the equation MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services. Rearranging the equation, we get PQ = MV, which shows that the product of the price level and the quantity of goods and services produced (nominal GDP) is equal to the product of the money supply and the velocity of money. Therefore, the correct answer is D, nominal GDP.

The Quantity Theory of Money Implies That the Money Supply