The velocity of money ________.
A)represents the average number of times a dollar is spent in a given year
B)indicates the relative importance of cash versus writing checks for purchases
C)times the money supply should equal real GDP
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The velocity of money is the number of times a dollar is spent in a specific year, on average. It is calculated as the nominal GDP divided by the money supply. Option B is incorrect because velocity does not indicate the relative importance of cash and check payments. Option C is incorrect because the equation is Quantity Theory of Money (MV = PY), which shows that money supply (M) multiplied by velocity (V) is equal to the price level (P) multiplied by real output (Y).

The Velocity of Money ________