Question

Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the aggregate price level equals 2.
If the velocity of money is 2, the money supply is:

a) $20 trillion. b) $10 trillion. c) $5 trillion. d) $40 trillion.

Answer 1

Answer:

b) $10 trillion

Explanation:

Price level = NGDP / RGDP = 2

NGDP / RGDP = 2

As per the quantity theory of money,

MV = PQ

M.(2) = 20

M = 10 trillion

Therefore, The  money supply is $10 trillion.