Question

Suppose the price level, as measured by the GDP deflator, is 1.08, the supply of money, measured by M1, is $3.6 trillion, and output, measured by real GDP, is $21.9 trillion. What is the velocity of money? Provide your answer as a number rounded to two decimal places. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Answer 1

Answer: Velocity of money = 6.57

Given:

GDP deflator = 1.08

Money supply (M) = $3.6 trillion

Real GDP (Y) = $21.9 trillion

Find: Velocity of money (V)

Calculation:

$GDP\: deflator = \frac{Nominal\: GDP}{Real\: GDP}$

$1.08 = \frac{Nominal\: GDP}{21.9}$

Nominal GDP = 1.08 * 21.9

Nominal GDP = 23.652

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MV = PY

(PY = Nominal GDP)

MV = Nominal GDP

$Velocity\: of\: money = \frac{Nominal\: GDP}{Money\: supply}$

$Velocity\: of\: money = \frac{23.652}{3.6} = 6.57$