If the stock of money is $100 billion, velocity is 4, and the price level is 5, what is income?
A) $5 billion
B) $80 billion
C) $125 billion
D) $2,000 billion

Question

Quizplus · Accepted Answer

The equation of exchange is MV=PY, where M is the stock of money, V is velocity, P is the price level, and Y is income. Rearranging the equation, we get Y=MV/P. Substituting the given values, we get Y=($100 billion x 4)/5 = $80 billion. Therefore, the answer is B.

If the Stock of Money Is $100 Billion, Velocity Is