The velocity of circulation is defined as the
A) average speed that dollars circulate in an economy as people use them to buy goods and services.
B) quantity of money supplied by the Fed.
C) quantity of money demanded at equilibrium.
D) price level obtained when the money market is at its equilibrium.
E) speed with which changes in the interest rate spread throughout the economy.

Question

Quizplus · Accepted Answer

Velocity of circulation refers to the speed at which money circulates in an economy as people use it to buy goods and services. It is calculated as the nominal gross domestic product (GDP) divided by the money supply (or money stock). Therefore, option A is the correct answer. Option B refers to the money supply, option C relates to the quantity of money demanded, option D refers to the price level determined by the money market, and option E is related to the spread of interest rate changes throughout the economy, none of which defines velocity of circulation.

The Velocity of Circulation Is Defined as the