Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion.Then, according to the equation of exchange, the velocity of money equals 8.

Question

Quizplus · Accepted Answer

According to the equation of exchange (MV = PQ), velocity (V) equals nominal GDP (PQ) divided by the nominal money supply (M). So, velocity (V) = PQ/M = $16 billion/$2 billion = 8. Therefore, the statement is true.

Suppose That the Nominal Money Supply Equals $2 Billion and Nominal