In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then
A) nominal GDP is $10 trillion.
B) Q = $10 trillion.
C) Q = $10.5 trillion.
D) real GDP is $10.5 trillion.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ. Solving for Q, we get Q = MV/P = ($1.5 trillion x 7)/1.05 = $10 trillion. Therefore, choice B is correct. Choices A, C, and D cannot be determined from the given information.

In the Equation of Exchange, If M = $1