The velocity of circulation is equal to
A) the price level divided by real GDP.
B) the price level multiplied by the quantity of money.
C) nominal GDP divided by the quantity of money.
D) the quantity of money divided by the price level and then multiplied by real GDP.
E) the quantity of money divided by nominal GDP.

Question

Quizplus · Accepted Answer

The velocity of circulation is the number of times money changes hands in a year. It is calculated as the ratio of nominal GDP to the quantity of money in circulation, which means that it is equal to nominal GDP divided by the quantity of money. Therefore, the correct answer is C, which is nominal GDP divided by the quantity of money.

The Velocity of Circulation Is Equal to