Question

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

Short answer

The velocity of money that has GDP as 1,500 and Money Supply of 350 will be 4.28.

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

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

$GDP=1500$

$Moneysupply=350$

$\text{Velocity}=\frac{1,500}{350}$

$=4.28$