Consider a simple economy that produces only chocolates.The economy produces 100 bars of chocolates in a year, and a chocolate bar costs $5.If the quantity of money supplied in the economy is $25, then the velocity of money is:
A)2.5
B)10
C)20
D)1000

Question

Quizplus · Accepted Answer

Velocity of money (V) = Total spending (P x Q) / Quantity of money (M)
Total spending (P x Q) = 100 bars x $5/bar = $500
V = $500 / $25 = 20
Therefore, the velocity of money is 20 in this economy. Choice C is the correct answer.

Consider a Simple Economy That Produces Only Chocolates