Question

According to the quantity theory of money, if the money supply is $40 billion, real output is $100 billion, and the price level is 1. 2, what is the velocity of money?.

Answer 1

The velocity of money is 3.

What is the quantity theory of money?

The quantity theory of money is an economy theory that arose in the 16th century. It is an idea of monetary economists. The  quantity theory of money states that the price of goods and services in an economy is directly proportional to the money supply.

Quantity theory of money = price x real output = money supply x velocity

What is the velocity?

Velocity = ( price x real output / money supply)

(1.2 x 100 billion) / 40 billion = 3

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