Question

If nominal gdp is 1400 and the money supply is 350, then what is velocity? group of answer choices

- 4.5
- 25
- 22
- 4

Answer 1

If nominal GDP is 1400 and the money supply is 350, the velocity is 4, as it is calculated by dividing the nominal GDP by the money supply.

Step-by-step explanation:

If nominal GDP is 1400 and the money supply is 350, to calculate velocity, you use the equation Velocity = Nominal GDP / Money Supply. Therefore, Velocity = 1400 / 350, which equals 4. This means that every dollar of the money supply circulates 4 times within the economy to achieve the nominal GDP of 1400.

Answering the supplementary questions provided:

1. With an expected increase in the velocity of money by 50%, the nominal GDP would increase correspondingly, because an increased velocity implies each dollar is used more often in transactions.
2. With a GDP of 1,500 and a money supply of 400, the velocity is 3.75 (1,500 / 400).
3. If the GDP rises to 1,600 and the money supply remains unchanged, the velocity has increased, indicating that the average dollar is circulating more frequently.
4. If the GDP falls back to 1,500 and the money supply falls to 350, the velocity is again 4.29 (1,500 / 350), indicating that the average dollar circulates more times in the economy after the fall in money supply.