GDP is $2,000 billion, the GDP deflator is 100 (a price level of 1), and the velocity of circulation is 5. The quantity of money is
A)$10,000 billion.
B)$2,000 billion.
C)$400 billion.
D)$20 billion.
E)$500 billion.

Question

Quizplus · Accepted Answer

According to the quantity equation of money (MV=PQ), the quantity of money (M) equals GDP (Q) divided by the price level (P) and velocity of circulation (V). Therefore, M=Q/P x V. Substituting the values given, we get M= $2,000 billion / 100 x 5 = $400 billion.

GDP Is $2,000 Billion, the GDP Deflator Is 100 (A