Multiple Choice
What is the total value of final goods and services produced in a country in a given year called?
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10. Measuring National Output and Income
Expenditure Approach for Measuring GDP
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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
Verified step by step guidance1
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.
In this problem, the nominal GDP (\(P \times Y\)) is given as 2400, and the money supply (\(M\)) is 600.
Rearrange the equation to solve for velocity (\(V\)): \(V = \frac{P \times Y}{M}\).
Substitute the given values into the formula: \(V = \frac{2400}{600}\).
Calculate the division to find the velocity of money, which tells us how many times money circulates in the economy during a period.
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