Question:
Suppose nominal GDP equals 1,000 units and money supply equals 250 units. Based on the quantity theory of money, the velocity of money equals
Suppose nominal GDP equals 1,000 units and money supply equals 250 units. Based on the quantity theory of money, the velocity of money equals
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141
Updated On: Feb 10, 2025
- 40
- 4
- 2,50,000
- 500
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The Correct Option is B
Solution and Explanation
Velocity of Money in the Quantity Theory of Money
The velocity of money (V) in the Quantity Theory of Money is defined as:
V = (P × Q) / M
Where:
- P × Q represents nominal GDP.
- M is the money supply.
Given:
- Nominal GDP (P × Q) = 1000
- Money Supply (M) = 250
Substituting the values:
V = 1000 / 250 = 4
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