What is the velocity of money in New Island, knowing the following?Money Supply = 5,000P= 6Y= 2,500The velocity of money is:
Question
What is the velocity of money in New Island, knowing the following?
- Money Supply = 5,000
- P = 6
- Y = 2,500
The velocity of money is:
Solution
The velocity of money is calculated using the formula:
V = PY / M
where:
- V is the velocity of money,
- P is the price level,
- Y is the real GDP, and
- M is the money supply.
Given the values in the question:
P = 6, Y = 2,500, and M = 5,000,
we can substitute these values into the formula:
V = (6 * 2,500) / 5,000
This simplifies to:
V = 15,000 / 5,000
So, the velocity of money in New Island is 3.
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