Question

In Drewland, the money supply equals $1,000 and nominal GDP equals $5,000, then velocity of money equals

A, 0.2.
B. 2.
C. 5.
D. 50.
E. cannot be determined with the information provided.

Answer 1

Answer: C. 5. GDP (gross domestic product) is the amount measuring the total economic output of the goods and services of one country. GDP is nominal if there is no inflation adjustment. Assuming that our GDP is nominal: The formula for GDP is: GDP = Money Supply x Velocity of Money In our example, GDP=5,000 Money Supply= 1000 We rearrange the formula to get velocity of money (V) V=GDP/Money Supply V=5,000/1000 V=5