Question

If nominal GDP is 2400 and the money supply is 400, what is the velocity?

Answer 1

The velocity of money is 6.

Explanation:

Nominal Gross Domestic Product is the Gross Domestic Product that has been determined by the current prices of goods and services in a market.

Money velocity expresses the rate at which money moves from one entity to another in a given economy. It it the ratio of the nominal Gross Domestic Product to the money supply in an economy.

i.e V =
`(P * Y)/(M)`

where: V is the velocity of money, P x Y is the nominal GDP i.e price level x output/real GDP, and M is the money supply. High velocity of money causes an increase in inflation.

Given that, nominal GDP = 2400 and money supply = 400, then;

V =
`(2400)/(400)`

= 6

Therefore the velocity of money is 6.