The velocity of money is the ratio of
A) real GDP to the stock of money.
B) the overall price level to the stock of money.
C) nominal GDP to the stock of money.
D) nominal GDP to the overall price level.

Question

Quizplus · Accepted Answer

The velocity of money is the number of times a unit of money is spent in a given period of time. This can be calculated as nominal GDP divided by the stock of money. Therefore, choice C - nominal GDP to the stock of money - is the correct answer. Choices A (real GDP to the stock of money) and B (overall price level to the stock of money) do not take into account the role of nominal GDP in the calculation of velocity. Choice D (nominal GDP to the overall price level) is incorrect because the ratio of nominal GDP to the overall price level is equivalent to real GDP, which is not the correct measure for calculating the velocity of money.

The Velocity of Money Is the Ratio of