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Assume that the money supply in an economy is [tex]$900 million, the velocity of money is constant at 5, and the price per unit of output is $[/tex]3. What is the real and the nominal GDP?
O The real GDP is [tex]$1,500 million, and the nominal GDP is $[/tex]3,500 million.
O The real GDP is [tex]$1,500 million, and the nominal GDP is $[/tex]4,500 million.
O The real GDP is [tex]$1,600 million, and the nominal GDP is $[/tex]4,500 million.
The real GDP is [tex]$3,500 million, and the nominal GDP is $[/tex]700 million.
O The real GDP is [tex]$4,500 million, and the nominal GDP is $[/tex]1,500 million.



Answer :

GinnyAnswer
To determine both the real GDP and the nominal GDP given the money supply, velocity of money, and price per unit of output, we will use the following economic relationships:

1. Nominal GDP is calculated using the formula:
[tex]\[ \text{Nominal GDP} = \text{Money Supply} \times \text{Velocity of Money} \][/tex]

2. Real GDP is then derived using the formula:
[tex]\[ \text{Real GDP} = \frac{\text{Nominal GDP}}{\text{Price per Unit of Output}} \][/tex]

Given parameters:
- Money Supply (M) = [tex]$900 million - Velocity of Money (V) = 5 - Price per Unit of Output (P) = $[/tex]3

Step-by-Step Calculation:

1. Calculate Nominal GDP:
The Nominal GDP is found by multiplying the money supply by the velocity of money:
[tex]\[ \text{Nominal GDP} = M \times V \][/tex]
[tex]\[ \text{Nominal GDP} = 900 \text{ million dollars} \times 5 \][/tex]
[tex]\[ \text{Nominal GDP} = 4500 \text{ million dollars} \][/tex]

2. Calculate Real GDP:
The Real GDP is obtained by dividing the Nominal GDP by the price per unit of output:
[tex]\[ \text{Real GDP} = \frac{\text{Nominal GDP}}{\text{Price per Unit of Output}} \][/tex]
[tex]\[ \text{Real GDP} = \frac{4500 \text{ million dollars}}{3 \text{ dollars per unit}} \][/tex]
[tex]\[ \text{Real GDP} = 1500 \text{ million units} \][/tex]

Thus, the correct answers are:
- Real GDP is [tex]$1,500 million. - Nominal GDP is $[/tex]4,500 million.

So, the correct choice is:
"O The real GDP is [tex]$1,500 million, and the nominal GDP is $[/tex]4,500 million."