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Chapter 11: Problem 390

If \(\mathrm{GNP}=\$ 2,000\) billion and the velocity of money is 4 , what is the money supply?

Short Answer

Expert verified
The money supply (M) is equal to 500 billion dollars.

Step by step solution

01

Identify the Given Values

We are given the GNP, which is equal to 2000 billion dollars, and it can be considered as the product of price and quantity (PQ). We are also given the velocity of money (V) which is 4.
02

Write the Equation of Exchange

The equation of exchange is: MV = PQ
03

Isolate the Money Supply (M)

We need to find the money supply (M), so we should isolate it in the equation of exchange: M = PQ / V
04

Substitute the Given Values

Now, we substitute the given values into the equation: M = (2000) / (4)
05

Calculate the Money Supply

Finally, we perform the calculation: M = 500
06

Express the Result

Therefore, the money supply (M) is equal to 500 billion dollars.

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Most popular questions from this chapter

Why does our paper money have value, that is, why is it worth more than just the paper it is printed on?

If output of goods and services in real terms was \(\$ 1600\) billion last year, the money supply was \(\$ 500\) billion and the velocity of money was 4, then what was the price level? Was last year an inflationary period or a deflationary period?

Wealth may be held in several types of financial assets List some of these financial assets.

Why are United States coins called "token money"?

Define the Quantity Theory of Money.
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