If the amount of money in circulation is $180 billion and the value of the economy's total output is $540 billion, then the
A) circulation period of money must be one-fourth of a year.
B) velocity of money is 4.
C) average price per ﬁnal good sold is $3.
D) velocity of money is 3.

Question

Quizplus · Accepted Answer

The equation for the quantity theory of money is MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. Rearranging the equation to solve for V, we get V = PY/M. Plug in the given values: V = ($540 billion)/($180 billion) = 3. Therefore, the velocity of money is 3.

If the Amount of Money in Circulation Is $180 Billion