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 8.

Question

Quizplus · Accepted Answer

According to the equation of exchange, MV = PQ, where M is the nominal money supply, V is the velocity of money, P is the price level, and Q is real GDP. Solving for V, we get V = PQ/M. In this case, we have M = $2 billion and PQ = $16 billion, so V = 8.

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