Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion. According to the equation of exchange, the velocity of money must equal

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The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced (real GDP). In this case, nominal GDP (PQ) is given as $16 billion, and the money supply (M) is $2 billion. To find the velocity of money (V), we rearrange the equation to V = PQ/M. Substituting the given values, we get V = $16 billion / $2 billion = 8. Therefore, the velocity of money must equal 8.

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