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Chapter 11: Problem 392

If \(1964 \mathrm{GNP}=\$ 622\) billion and the average money supply was \(\$ 155\) billion, what was the income velocity of money?

Short Answer

Expert verified
The income velocity of money is \(4\).

Step by step solution

01

Write down the formula for the income velocity of money.

The formula for the income velocity of money is: Income Velocity of Money = GNP / Money Supply
02

Identify given values

We are given the GNP and Money Supply values: GNP = \(622\) billion dollars Money Supply = \(155\) billion dollars
03

Substitute given values into the formula

Substitute the given GNP and Money Supply values into the formula: Income Velocity of Money = \(622\) billion dollars / \(155\) billion dollars
04

Calculate the income velocity of money

Divide the given GNP value by the given Money Supply value: Income Velocity of Money = \(4\) The income velocity of money is \(4\). This means that each dollar in the money supply was used to generate $4 in Gross National Product.

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Most popular questions from this chapter

What causes the fluctuations in the money supply \(\left(\mathrm{M}_{\mathrm{II}}\right) ?\) Can you analyze the determinants? Give an example.

Using the formula for maximizing the net income or holding bonds and selling them for transactions purposes $$ [\mathrm{n}=\sqrt{(} \mathrm{Zi} / 2 \mathrm{~b})] $$ where \(\mathrm{n}=\) number of transactions, \(Z=\) amount of bonds, \(\mathrm{i}=\) the interest rate on the bonds, and \(\mathrm{b}=\) the transactions cost: a) What would happen if i increased? Why? b) What would happen if b increased? Why?

What are the three sources of money creation?

How can the Pigou effect be explained?

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