Suppose the amount of money in the economy times the velocity of money equals $800 million.According to the equation of exchange, what does the $800 million represent?
A) real GDP
B) nominal GDP
C) velocity
D) quantity of money

Question

Suppose the amount of money in the economy times the velocity of money equals $800 million.According to the equation of exchange, what does the $800 million represent?  
A) real GDP 
B) nominal GDP 
C) velocity 
D) quantity of money

Quizplus · Accepted Answer

According to the equation of exchange, MV = PY, where M is the quantity of money, V is the velocity of money, P is the price level, and Y is real GDP. If we rearrange this equation, we get PY = MV, which means that the product of the price level and real GDP is equal to the product of the quantity of money and the velocity of money. In this case, we are given that MV = $800 million, which represents the quantity of money times the velocity of money. Therefore, the best choice is B, nominal GDP, which represents the product of the price level and real GDP (i.e., PY).

Suppose the Amount of Money in the Economy Times the Velocity