In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the price level is 2. What is the velocity of money?
A) 4
B) 2
C) 2.5
D) 5

Question

Quizplus · Accepted Answer

The velocity of money is calculated using the formula: Velocity = (Price Level x Real GDP) / Money Supply. Here, Velocity = (2 x $5 million) / $2.5 million = 4.

In a Small Economy, the Quantity of Money Circulating in the Economy