ECONOMICS
INFLATION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
75
|
|
|
$123 million
|
|
|
0.25
|
|
|
4
|
Detailed explanation-1: -The velocity of money can be calculated as the ratio of nominal gross domestic product (GDP) to the money supply (V=PQ/M), which can be used to gauge the economy’s strength or people’s willingness to spend money.
Detailed explanation-2: -The quantity theory of money assumes that the income velocity of money, V, is constant. If V is constant then any increase in nominal gross domestic product, P x GDP, occurs because of an increase in the money supply, M. The effect of a change in the money supply on inflation can now be determined.
Detailed explanation-3: -We can apply this to the quantity equation: money supply × velocity of money = price level × real GDP. growth rate of the money supply + growth rate of the velocity of money = inflation rate + growth rate of output.
Detailed explanation-4: -4If GDP is 2400 and the money supply is 600, then what is the velocity? $180 billion. The diagram refers to a private closed economy.