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

Question

Accepted Answer

∻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.⚹◊What is the formula for calculating the velocity of money according to the quantity theory of money?⍭ Generate me a similar question◊

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