Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. 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 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. 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

At equilibrium, the quantity of money supplied (MS) equals the quantity of money demanded (MD), which occurs at the intersection of the money supply curve (MS₂) and the money demand curve (MD). In this case, the equilibrium point occurs at a quantity of money of 4,500 and a velocity of approximately 9.0 (derived from dividing the GDP of 45,000 by the quantity of money of 4,500). Therefore, the velocity of money is approximately 9.0.