Question

If velocity = 5, the price level = 1.5, and the real value of output is 2,500, then the quantity of money is

Select one:
a. 333.33.
b. 750.00.
c. 1,050.00.
d. 8,333.33.

Answer 1

The quantity of money is calculated by using the quantity equation of money, which in this case gives us a money supply of 750.00. This is found by dividing the nominal GDP (price level multiplied by real GDP) by the velocity.

Step-by-step explanation:

The student's question pertains to calculating the quantity of money using the quantity equation of money, which is represented by the formula Money Supply X velocity = Nominal GDP = Price Level x Real GDP. Given that the velocity is 5, the price level is 1.5, and the real value of output (Real GDP) is 2,500, we can calculate the nominal GDP by multiplying the price level with the real value of output (1.5 x 2,500 = 3,750).

Now, using the quantity equation, we divide the nominal GDP by the velocity to find the money supply (3,750 / 5 = 750). Therefore, the quantity of money in circulation would be 750.00.