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Chapter 11: Problem 393

If \(\mathrm{GNP}=\$ 600\) billion and the money supply is \(\$ 200\) billion, what is the velocity of money?

Short Answer

Expert verified
The velocity of money in this economy is 3, meaning that each unit of currency is used 3 times in exchange for goods and services within the economy.

Step by step solution

01

Rewrite the equation for V

We need to rearrange the equation MV = PQ (or in this case, MV = GNP) to solve for the velocity of money (V). To do this, we can divide both sides of the equation by M, like so: V = GNP / M
02

Plug in the given values for GNP and M

Now, we can plug in the given values for GNP and the money supply (M) into the equation: V = (\$600 billion) / (\$200 billion)
03

Calculate V

Finally, we can calculate the velocity of money (V): V = (\$600 billion) / (\$200 billion) = 3 Thus, the velocity of money in this economy is 3. This means that, on average, each unit of currency is used 3 times in exchange for goods and services within the economy.

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