Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
-Refer to Figure 17-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

Question

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 17-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

Quizplus · Accepted Answer

The velocity of money (V) is calculated using the equation MV = PY, where M is the money supply, V is the velocity, P is the price level, and Y is the real GDP. If the money market is in equilibrium and MS2 represents the money supply, then V = PY/M. Given that real GDP (Y) is 45,000 and assuming P is 1 for simplicity, V = 45,000/M. If MS2 is such that V = 9.0, then the velocity is approximately 9.0.