Suppose the nominal GDP of a country is $500 billion. If the velocity of money in the country is 10, then the country's money supply will equal:
A) $5,000 billion.
B) $510 billion.
C) $490 billion.
D) $50 billion.

Question

Quizplus · Accepted Answer

The money supply can be calculated using the equation of exchange: MV = PQ, where M is the money supply, V is the velocity of money, and PQ is the nominal GDP. Given V = 10 and PQ = $500 billion, M = PQ/V = $500 billion / 10 = $50 billion.

Suppose the Nominal GDP of a Country Is $500 Billion