Question

If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?

Short answer

The velocity of money that has GDP as 1600 and Money Supply of 400 will be 4.

Step-by-step solution

Definition

The velocity of capital is a calculation of the pace at which money is traded in an economy. It is the digit of points that banknotes move from one commodity to another. It even directs to how much a unit of currency is operated in a provided period of time. Simply set, it's the pace at which customers and industries in an economy collectively pay funds.

velocity of money

Velocity of money can be expressed as the speed with which the funds circulates in the economy. The general term of velocity of money is noted down

$\text{Velocity}=\frac{\text{Nominal GDP}}{\text{Money Supply}}$

$GDP=1600$

$Moneysupply=400$

$\text{Velocity}=\frac{1,600}{400}$

$=4$