If the money supply in an economy equals $10 trillion and nominal GDP equals $50 trillion, then according to the equation of exchange, the velocity of money _____

Question

Quizplus · Accepted Answer

According to the equation of exchange, MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP (output). Solving for V, we get V=PY/M. Plugging in the given values, V= (50 trillion)/($10 trillion), which simplifies to V=5. Therefore, the velocity of money is 5.

If the Money Supply in an Economy Equals $10 Trillion