Question

If GDP is 1,500 and the money supply is 400, what is velocity?

Short answer

The velocity of money in this economy, calculated using the formula Velocity = \( \frac{GDP}{Money Supply} \), is 3.75. This means that each unit of currency is spent on average 3.75 times in a specific time period, indicating the rate at which money is circulating within the economy.

Step-by-step solution

Identify the given values

In this exercise, we are given: - GDP = 1,500 - Money Supply = 400

Apply the formula for velocity

Now that we know the GDP and Money Supply, we will use the formula to find the velocity: Velocity = GDP / Money Supply

Plug in the given values into the formula

Substitute the given values of GDP and Money Supply into the formula: Velocity = \( \frac{1,500}{400} \)

Calculate the velocity

Divide 1,500 by 400 to find the velocity: Velocity = \( 3.75 \)

Interpret the result

The velocity of money in this economy is 3.75, meaning that each unit of currency is spent on average 3.75 times in a specific time period. This is an indicator of how quickly money is circulating within the economy.