Given that GDP is 2400 and the money supply is 600, what is the velocity of money according to the quantity theory of money?

• A. 0.25
• B. 4
• C. 2400
• D. 600

Answer: (B)

Verified step by step guidance

1. Recall the Quantity Theory of Money equation: \(M \times V = P \times Y\), where \(M\) is the money supply, \(V\) is the velocity of money, \(P\) is the price level, and \(Y\) is the real GDP.
2. In this problem, the nominal GDP (\(P \times Y\)) is given as 2400, and the money supply (\(M\)) is 600.
3. Rearrange the equation to solve for velocity (\(V\)): \(V = \frac{P \times Y}{M}\).
4. Substitute the given values into the formula: \(V = \frac{2400}{600}\).
5. Calculate the division to find the velocity of money, which tells us how many times money circulates in the economy during a period.