The velocity of money is 4. If nominal GDP is $1,200 billion, the stock of money is?

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Prepare for the Rutgers Macroeconomics Test with multiple choice questions, hints, and explanations. Master key concepts and excel in your exam!

Multiple Choice

The velocity of money is 4. If nominal GDP is $1,200 billion, the stock of money is?

Explanation:
Velocity of money is the average number of times a dollar is used to buy goods and services in a period. It links the money supply to nominal GDP with the equation MV = PY, where PY is nominal GDP. Here, velocity is 4 and nominal GDP is 1200 billion. Solve for the money stock: M = PY / V = 1200 / 4 = 300 billion. So the stock of money is 300 billion. Quick check: 4 × 300 = 1200, which matches nominal GDP. The other amounts would imply different nominal GDP for the same velocity, so they don’t fit.

Velocity of money is the average number of times a dollar is used to buy goods and services in a period. It links the money supply to nominal GDP with the equation MV = PY, where PY is nominal GDP.

Here, velocity is 4 and nominal GDP is 1200 billion. Solve for the money stock: M = PY / V = 1200 / 4 = 300 billion. So the stock of money is 300 billion. Quick check: 4 × 300 = 1200, which matches nominal GDP. The other amounts would imply different nominal GDP for the same velocity, so they don’t fit.

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