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Answer :
Final answer:
The correct answer, using the formula for the velocity of money, should be a GDP of $6 trillion if the money supply is $2 trillion, considering a velocity of 3.
Explanation:
The correct answer is option 'GDP is $6 trillion and money supply $2 trillion'. To find the GDP of the economy, given the velocity of money, we use the formula Velocity = Nominal GDP / Money Supply. Based on the provided velocity of 3, we can arrange the formula to solve for nominal GDP: Nominal GDP = Velocity x Money Supply.
If we're given a money supply change by $100 billion and assuming the velocity of money is constant at 3, the expansion in nominal GDP would be 3 x $100 billion = $300 billion.
For the options provided in the question, any GDP must be a multiple of the velocity (3) times the money supply. Therefore, the only feasible pair from the provided options that fits the velocity formula would be a GDP of $6 trillion if the money supply were $2 trillion, not the options directly listed.
It's important to note that all the given choices in the question contain a mathematical error, as none of them correctly apply the formula for the velocity of money. Thus, we need to take the most logical approximation.
The correct answer is option O gdp is $6 trillion and money supply $9 trillion.
The velocity of money is equal to the nominal GDP divided by the money supply. In this case, we are given that the velocity is 3. If we let x represent the money supply, then we can set up the equation:
3 = gdp / x
Given that the GDP is $6 trillion, we can substitute that value into the equation:
3 = $6 trillion / x
Multiplying both sides of the equation by x, we get:
3x = $6 trillion
Dividing both sides of the equation by 3, we find:
x = $2 trillion
Therefore, the money supply in this economy is $2 trillion.
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