If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion,the stock of money in circulation must be
A)$25 billion.
B)$50 billion.
C)$100 billion.
D)$800 billion.

Question

Quizplus · Accepted Answer

The velocity of money (V) is calculated as nominal GDP (P*Y) divided by the money supply (M). Given V = 4 and nominal GDP = $200 billion, we have 4 = $200 billion / M. Solving for M gives M = $200 billion / 4 = $50 billion.

If the Velocity of the M1 Money Supply Is 4