Question

Velocity is a term that economists use to describe how quickly money circulates through the economy. The velocity of money in a year is defined as:

Velocity = _______ / _______

Answer 1

The velocity of money in the economy measures how quickly money circulates through the economy. It can be calculated by dividing the nominal GDP by the money supply.

Step-by-step explanation:

The velocity of money in the economy measures how quickly money circulates through the economy. It can be calculated by dividing the nominal GDP (the total value of all goods and services produced) by the money supply (the total amount of money in circulation). Different measurements of velocity can be obtained by using different measures of the money supply.

For example, the velocity of M1, which includes currency in circulation and checking account balances, can be calculated by dividing the nominal GDP by the M1 money supply. A higher velocity means that the average dollar circulates more times in a year, while a lower velocity means the average dollar circulates fewer times.