Question

If nominal gross domestic product in a country is $1,600 and the money supply is $400, what is the velocity of money

Answer 1

`Velocity = 4`

Step-by-step explanation:

Given

`NGDP = \$1600` --- nominal gross domestic product

`Money\ Supply = \$400`

Required

Determine the velocity of money

This is calculated using:

`Velocity = (PT)/(M)`

Where:

`P = Price\ Level`

`T = Real\ Transaction\ Value`

`M = Amount\ of\ Money`

In terms of NGDP, the velocity is calculated as:

`Velocity = (NGDP)/(M)`

So:

`NGDP = \$1600`

`M = \$400`

The expression becomes

`Velocity = (\$1600)/(\$400)`

`Velocity = 4`