According to the equation of exchange,if the amount of money in an economy multiplied by the velocity of money equals 800 million dollars,then this economy's:
A)real GDP equals $800 million.
B)nominal GDP equals $800 million.
C)real GDP equals $800 million times the price level.
D)nominal GDP equals $800 million times the price level.
E)price level equals $800.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP. The product of M and V (which equals $800 million in this case) represents the nominal GDP, not the real GDP or the price level.

According to the Equation of Exchange,if the Amount of Money