Suppose nominal GDP is $450 billion and the average dollar is spent three times per year. If the money demand is in equilibrium with the money supply, what does this imply about the transactions demand for money?
Explanation
The transactions demand for money (Dt) is related to nominal GDP and the velocity of money (V). Specifically, Dt = Nominal GDP / V. Given a nominal GDP of $450 billion and a velocity of 3, the amount of money needed for transactions is $150 billion.
Other questions
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