Answer:
a) real GDP =$20,000,000
b)velocity of money is 2.50
Explanation:
Nominal GDP is normal spending carried out in terms of dollars.
Nominal GDP is the product of real GDP and price level
Nominal GDP= real GDP*Price level
Given the nominal GDP=$25 million and the price level =1.25 then,
$25000000=real GDP *1.25
$25000000/1.25 = real GDP
$20000000= real GDP
Apply the quantity equation in economics which is;
money supply*velocity of money =price level * real GDP
Given the money supply is=$10,000,000 then,
velocity of money = (price level*real GDP)/money supply
velocity of money = (1.25*20,000,000)/10,000,000
velocity of money =2.50
