(Scenario: The Quantity Theory of Money)Refer to 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.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, nominal GDP is equal to the product of the money supply and the velocity of money. If the velocity of money is assumed to be constant, then nominal GDP is directly proportional to the money supply. Given that the aggregate price level is 4, we can use the equation of exchange (MV=PY) to solve for nominal GDP: 
M x V = P x Y 
Since V is constant, we can simplify to: 
M = (P x Y) / V 
M = (4 x $15 billion) / 1.5 
M = $60 billion 
Therefore, the best choice is B.

(Scenario: the Quantity Theory of Money)Refer to Scenario: the Quantity