The velocity of money measures the rate of circulation of the money supply and can be expressed by the following equation (note: GDP = gross domestic product and MS = money supply):
A)VM = GDP/MS
B)VM = MS/GDP
C)VM = MS x GDP
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The velocity of money is defined as the rate at which the money supply is used to purchase goods and services in a given period of time. Therefore, it can be expressed as the ratio of GDP to the money supply (VM = GDP/MS). Options B and C are incorrect because the numerator and denominator are in the wrong order.

The Velocity of Money Measures the Rate of Circulation of the Money