Suppose that the nominal quantity of money is $200 billion and the value of nominal GDP is $1 trillion. It must be the case that
A) the economy is suffering from inflation.
B) the average price paid for a "typical" good is $5.
C) there will be a shortage of money balances in the economy.
D) the velocity of circulation is 5.

Question

Quizplus · Accepted Answer

The velocity of money is calculated as the ratio of nominal GDP to the money supply. In this case, it is $1 trillion / $200 billion = 5. This means that, on average, each dollar is used 5 times in the transaction of the nominal GDP. Choices A, B, and C do not necessarily follow from the information given.

Suppose That the Nominal Quantity of Money Is $200 Billion