Suppose that the Price level = 140, the Supply of Money = $20 billion, and the Velocity of Money is 35. What does real GDP equal?
Select one:
a. $4 billion
b. $5 billion
c. $8 billion
d. $10 billion
e. $12 billion
Velocity of money=GDP/money supply
So GDP =velocity of money×money supply
So GDP=35×20=700
Real GDP =nominal GDP/deflator
Real GDP=700/140
=$5 billion.
So option B is the correct statement.
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