Question

If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions purposes is equal to

A. Four percent of nominal GDP
B. 25 percent of nominal GDP
C. Nominal GDP multiplied times 4
D. Nominal GDP divided by 25

Answer 1

Answer:

The answer is (B) which is the 25 percent of nominal GDP.

Now, the question may arise that what prompted us in choosing the option (b)

This consequentially will take us to the point where we define and discuss on how we calculate for nominal GDP

What is nominal GDP:

Nominal GDP which simply means a group or pattern of measurement of a country gross domestic product. It is usually being analysed at market current prices. Hence, nominal GDP includes all of the changes in market prices that happened during the current  or existing year due to inflation or deflation.

How do we calculate for nominal GDP:

It is calculated by dividing Nominal GDP by Real GDP and then multiplying by 100.

It should also be noted that Nominal GDP is the market value of goods and services produced in an economy in its raw or un-adjusted  format for inflation. Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output.