ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Velocity is the number of times the average dollar is spent to buy final goods and services in a given year. Velocity can be calculated by using V = (P x Y ) / M. The equation tells us that total spending (M x V) is equal to total sales revenue (P x Y).

Detailed explanation-2: -The equation of exchange shows that the money supply M times its velocity V equals nominal GDP. Velocity is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.

Detailed explanation-3: -Consider the quantity equation M x V = P x Y, where M is the quantity of money, V is the velocity of money, P is the average price of goods and services, and Y is the level of real output of goods and services.

Detailed explanation-4: -In equation form, it is represented by MV = PY, where M is money supply, V is the velocity of money, P is price level or inflation, and Y is the real output or real GDP.

Detailed explanation-5: -The Fisher Equation lies at the heart of the Quantity Theory of Money. MV=PT, where M = Money Supply, V= Velocity of circulation, P= Price Level and T = Transactions. T is difficult to measure so it is often substituted for Y = National Income (Nominal GDP). Therefore MV = PY where Y =national output.