If average prices are 2, real GDP is $100 billion, and the quantity of money is $40 billion, what is the velocity of money?
A) 2.5
B) 4.0
C) 5.0
D) 10.0
E) 50.0

Question

Quizplus · Accepted Answer

Velocity of money (V) = Nominal GDP / Quantity of Money
Nominal GDP = P * Real GDP
where P = average prices

Therefore, Nominal GDP = 2 * 100 billion = $200 billion

Plugging in the values, we get:
V = 200 billion / 40 billion = 5.0

If Average Prices Are 2, Real GDP Is $100 Billion