If the velocity of circulation is seven and the money supply declines by 10 percent,nominal GDP declines by ________ percent.

Question

Quizplus · Accepted Answer

The velocity of circulation is the number of times that a unit of currency is used to purchase goods and services in a given period of time. If the velocity of circulation is seven, then each unit of currency is used seven times to purchase goods and services. If the money supply declines by 10 percent, then there are fewer units of currency available to purchase goods and services. This will lead to a decline in nominal GDP, which is the total value of all goods and services produced in an economy in a given period of time. The decline in nominal GDP will be equal to the percentage decline in the money supply multiplied by the velocity of circulation. In this case, the decline in nominal GDP will be 10 percent multiplied by seven, which is 70 percent.

If the Velocity of Circulation Is Seven and the Money