Question

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

Short answer

The new velocity of money is$4.285$.

Step-by-step solution

Concept Introduction 

Money supply: Monetary resource is that the total stock of cash within the economy at some extent of your time.

GDP (Gross Domestic Product): GDP of a rustic is that the value of all finished (final) goods and services produced in an economy during a specific year. It represents the economic well-being of a rustic because it is that the aggregate income of that economy.

Velocity of cash: It's the pace of circulation of money within the economy.

Explanation of Solution

The velocity of cash is pace of circulation of cash within the economy. The formula for calculating velocity of cash is given below.

$\text{Velocityof money}=\frac{\text{Nominal GDP}}{\text{Money supply}}$$\Rightarrow v=\frac{Y}{M^s}$

Given information

$\text{Money supply,}{\mathrm{M}}^{\mathrm{S}}=\$350$

$\text{Nominal GDP}=\$1500$

Calculation

$\text{With given money supply and nominal GDP, we calculate the velocity of money as follows:}$

$\text{Velocityof money}=\frac{\text{Nominal GDP}}{\text{Money supply}}$$\Rightarrow v=\frac{Y}{M^s}$

$v=\frac{1500}{350}$

$v=4.285$

Hence, The new velocity of money is $4.285$.