If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is
A) 0.125.
B) 8.
C) 12.
D) 20.

Question

Quizplus · Accepted Answer

Using the equation of quantity theory of money:
MV = PQ
where 
M = money supply = $50 billion
V = velocity of money
P = price level (implies nominal GDP)
Q = real GDP

Substituting the given values:
$50 billion * V = $400 billion
V = $400 billion / $50 billion
V = 8

If Nominal GDP Is $400 Billion and the Money Supply