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Scenario: The Quantity Theory of Money
Suppose the money supply is equal to $10 billion and the velocity of money is 6.
-(Scenario: The Quantity Theory of Money) Look at the scenario The Quantity Theory of Money. If the aggregate price level is 4, then the nominal GDP is:
A)$15 billion.
B)$60 billion.
C)$20 billion.
D)$10 billion.

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Quizplus · Accepted Answer

According to the Quantity Theory of Money, MV=PQ, where M is the money supply, V is the velocity of money, P is the aggregate price level, and Q is the real GDP. Solving for Q, we get Q=MV/P=10 billion x 6/4= $<<10*6/4=15>>15 billion. Therefore, the nominal GDP is $60 billion.

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