Question

Statistics

Posted 5 months ago

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Nominal GDP is $\$ 100$ million and the money supply is $\$ 25$ million.
According to the quantity theory of money, what is the velocity of money?
Choose 1 answer:
(A) 0.25
(B) 2500
(C) $\$ 125$ 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 $MV = PQ$, where $M$ is the money supply, $V$ is the velocity of money, $P$ is the price level, and $Q$ is the real output (which is equivalent to real GDP)

step 2

In this problem, we are given the nominal GDP (which is $PQ$) as 100 million and the money supply \( M \) as 25 million. We need to find the velocity of money $V$

step 3

Rearrange the equation to solve for $V$: $V = \frac{PQ}{M}$

step 4

Substitute the given values into the rearranged equation: $V = \frac{100 \text{ million}}{25 \text{ million}}$

step 5

Calculate the velocity of money: $V = 4$

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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