Question

According to the equation of exchange,if real GDP is $2 trillion and the money supply is $0.5 trillion,the velocity of money:________.

A) must be 4
B) must be 1/4
C) must be 4 trillion
D) must be 1/4 trillion
E) cannot be determined unless we know the price level

Answer 1

A) must be 4

Step-by-step explanation:

Velocity of money is the rate of exchange of money in an economy

Use the following formula to calculate the velocity of money

Velocity of money = GDP value / Money Supply

Placing values in the formula

Velocity of money = $2 trillion / 0.5 trillion

Velocity of money = 4

Hence, Option A) must be 4 is correct option