Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal.Also assume that nominal GDP equals $960 billion and the money supply is $160 billion.From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by
A)$13 billion.
B)$24 billion.
C)$72 billion.
D)$80 billion.

Question

Quizplus · Accepted Answer

According to the strict monetarist view, the velocity of money is constant. Given the initial money supply of $160 billion and nominal GDP of $960 billion, the velocity is 6. An increase in the money supply by $12 billion would lead to an increase in nominal GDP by $12 billion * 6 = $72 billion.

Assume Monetary Equilibrium Exists; That Is, the Desired and Actual