Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M₁ = 7.8 percent; GDP Deflator = 2.2 percent.Given this data, the growth of velocity was approximately

Question

Quizplus · Accepted Answer

The equation of exchange is M₁V = GDP Deflator * Real GDP. Rearranging this equation to solve for velocity V, we get V = (GDP Deflator * Real GDP) / M₁. Substituting the given values for real GDP, M₁, and GDP Deflator, we get:
V = (2.2 / 100) * (2.8 / 100) / (7.8 / 100)
V ≈ -0.028 or -2.8%
Therefore, the growth of velocity was approximately -2.8 percent.

Economists Observed the Following Growth Rates in the Fourth Quarter