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Question
Statistics
Posted 5 months ago

Nominal GDP is $100\$ 100 million and the money supply is $25\$ 25 million.
According to the quantity theory of money, what is the velocity of money?
Choose 1 answer:
(A) 0.25
(B) 2500
(C) $125\$ 125 million
(D) 75
(E) 4
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
The Quantity Theory of Money is given by the equation MV=PQ MV = PQ , where M M is the money supply, V V is the velocity of money, P P is the price level, and Q Q is the real output (which is equivalent to real GDP)
step 2
In this problem, we are given the nominal GDP (which is PQ PQ ) as 100 million and the money supply \( M \) as 25 million. We need to find the velocity of money V V
step 3
Rearrange the equation to solve for V V : V=PQM V = \frac{PQ}{M}
step 4
Substitute the given values into the rearranged equation: V=100 million25 million V = \frac{100 \text{ million}}{25 \text{ million}}
step 5
Calculate the velocity of money: V=4 V = 4
Answer
E
Key Concept
Velocity of Money
Explanation
The velocity of money is the rate at which money circulates in the economy and is calculated by dividing nominal GDP by the money supply.

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