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Chapter 15: Problem 44

If GDP now falls back to 1,500 and the money supply falls to \(350,\) what is velocity?

Short Answer

Expert verified
The velocity of money in this scenario is approximately 4.29, which can be calculated using the formula V = Nominal GDP / Money Supply, where Nominal GDP = 1,500 and Money Supply = $350. So, V = \( \frac{1500}{350} \) ≈ 4.29. This means that, on average, each unit of currency is used in transactions worth 4.29 times the value of the money supply over the course of a year.

Step by step solution

01

Identify the given values

We are given the following information: - Nominal GDP = 1,500 - Money Supply = $350
02

Use the formula for velocity of money

The formula for velocity of money is: V = Nominal GDP / Money Supply
03

Substitute the given values into the formula

Now, replace the given values for nominal GDP and money supply in the formula: V = 1,500 / 350
04

Calculate the velocity of money

Divide 1,500 by 350 to get the velocity of money: V = \( \frac{1500}{350} \) ≈ 4.29
05

Interpret the result

The velocity of money in this scenario is approximately 4.29. This means that, on average, each unit of currency is used in transactions worth 4.29 times the value of the money supply over the course of a year.

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