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Chapter 15: Q.42 (page 380)

If GDP is 1,500 and the money supply is 400, what is velocity?

Short Answer

Expert verified

The velocity of money that has GDP as 1500 and Money Supply of 400 will be 3.75.

Step by step solution

01

Definition

The velocity of capital is a calculation of the pace at which money is traded in an economy. It is the digit of points that banknotes move from one commodity to another. It even directs to how much a unit of currency is operated in a provided period of time. Simply set, it's the pace at which customers and industries in an economy collectively pay funds.

02

Velocity of money

Velocity of money can be expressed as the speed with which the funds circulates in the economy. The general term of velocity of money is noted down:

Velocity=Nominal GDPMoney Supply

In the question,

GDP=1500

Moneysupply=400

Velocity=1,500400

=3.75

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