If nominal GDP is 1800 and the money supply is 450, what is the velocity of money?

• A. 0.25
• B. 2250
• C. 4
• D. 180

Answer: (C)

Verified step by step guidance

1. Recall the equation for the velocity of money, which is given by the formula: \(V = \frac{PY}{M}\), where \(V\) is the velocity of money, \(P\) is the price level, \(Y\) is the real output, \(PY\) is the nominal GDP, and \(M\) is the money supply.
2. Identify the given values in the problem: nominal GDP (\(PY\)) is 1800, and the money supply (\(M\)) is 450.
3. Substitute the known values into the velocity of money formula: \(V = \frac{1800}{450}\).
4. Simplify the fraction to find the velocity of money, which represents how many times the money supply is used to purchase goods and services within the economy during a given period.
5. Interpret the result as the average number of times each unit of money circulates in the economy to support the nominal GDP.