The income velocity of money:
A)is defined in the identity MV = PY.
B)is defined in the identity MV = PT.
C)is the same thing as the transactions velocity of money.
D)will be smaller than the transactions velocity of money if the quantity of transactions is greater than income.

Question

Quizplus · Accepted Answer

The income velocity of money is defined by the equation MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output (income). This equation shows the relationship between the money supply and the economy's output, and demonstrates how money circulates through the economy. The income velocity of money is different than the transactions velocity of money, as it measures the number of times a unit of money is spent in a year to support economic activity.

The Income Velocity of Money