If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is
A) 0.5.
B) 2.
C) 4.
D) 8.

Question

Quizplus · Accepted Answer

The equation for the quantity equation of money is:
M x V = P x Y
where:
M = Money supply
V = Velocity of money
P = Price level
Y = Real GDP
We can rearrange the equation to solve for V:
V = (P x Y) / M

Given:
M = $400 billion
Y = $800 billion

To solve for V, we need to know the price level (P).
Without information about the price level, we cannot determine an exact value for the velocity of money, but we can make an estimate.

Assuming a price level of 2, we can calculate the velocity of money as:
V = (2 x $800 billion) / $400 billion
V = 4

Therefore, the best choice is B) 2.

If the Amount of Money in Circulation Is $400 Billion