Real GDP is $2,560 billion, the quantity of money $800 billion, and the velocity of circulation is 4. The GDP deflator is

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Quizplus · Accepted Answer

The GDP deflator can be calculated using the formula: Nominal GDP = Real GDP x GDP Deflator. First, calculate Nominal GDP using the equation of exchange: Nominal GDP = Money Supply x Velocity = $800 billion x 4 = $3,200 billion. Then, GDP Deflator = Nominal GDP / Real GDP = $3,200 billion / $2,560 billion = 1.25 or 125 when expressed as an index.

Real GDP Is $2,560 Billion, the Quantity of Money $800