Velocity is V, the quantity of money is M, the price level is P, and real GDP is Y.Which of the following formulas is correct?
A) V = (P × Y) ÷ M
B) V = (P + Y) × M
C) Y = V × M
D) Y = (P × M) ÷ V
E) Y = (P + M) - V

Question

Quizplus · Accepted Answer

The formula for velocity of money is V = (P × Y) ÷ M, which indicates the number of times a unit of money is used in transactions during a given period. Real GDP (Y) and the price level (P) affect the demand for money and, in turn, the velocity of money. However, the quantity of money (M) is the key determinant of the nominal value of transactions in the economy, and the velocity of money is the ratio of this nominal value to the quantity of money.

Velocity Is V, the Quantity of Money Is M, the Price