Question

In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money

Answer 1

Answer:

Velocity of money = 4

Explanation:

Given:

Real GDP = $5 million

Quantity of money circulating = $2.5 million

Average price level = 2

Find:

Velocity of money

Computation:

Velocity of money = [Real GDP x Average price level] / Quantity of money circulating

Velocity of money = [$5 million x 2] / $2.5 million

Velocity of money = [$10 million] / $2.5 million

Velocity of money = 4