Question

If nominal gdp is 2500 and the money supply is 500, what is the velocity? group of answer choices

- 6
- 8
- 4.57
- 5

Answer 1

The velocity of money is found by dividing the nominal GDP by the money supply. With a nominal GDP of 2500 and a money supply of 500, the velocity in this situation is calculated to be 5.

Step-by-step explanation:

To calculate the velocity of money, you divide the nominal GDP by the money supply. In this scenario, the nominal GDP is 2500, and the money supply is 500. Using the formula Velocity = nominal GDP / money supply, we get Velocity = 2500 / 500.

After performing the calculation, we find that the velocity of money in this case is 5. Therefore, the average dollar circulates five times within the economy in a given year.

Answer 2

The velocity of money in this scenario is found by dividing the nominal GDP ($2500) by the money supply ($500), resulting in a velocity of 5. This indicates each dollar in the economy is used five times to purchase goods and services.

Step-by-step explanation:

The question asks about the velocity of money, which is a concept in economics that indicates the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. To calculate the velocity, you need to divide the nominal GDP by the money supply.

Given that the nominal GDP is $2500 and the money supply is $500, we can calculate the velocity by doing the following operation: 2500 ÷ 500, which equals 5.

Therefore, the velocity of money in this scenario is 5. It means that, on average, each dollar in the money supply was used five times over the period in the calculation to purchase goods and services.

Understanding the concept of velocity is crucial as it helps to gauge the health of an economy; a higher velocity might suggest higher economic activity, while a lower velocity can indicate stagnation.