If an economy produces 2,000 units of output with a price level of $2 and the money supply (M) is $1,000, velocity is:
A) 4.
B) 500.
C) 1.
D) 2.

Question

Quizplus · Accepted Answer

The velocity of money (V) is calculated using the equation of exchange: MV = PY, where M is the money supply, V is the velocity, P is the price level, and Y is the output. Here, V = (P * Y) / M = (2 * 2000) / 1000 = 4.

If an Economy Produces 2,000 Units of Output with a Price