Assume GDP is currently $10,800 billion per year and the quantity of money is $540 billion....
Assume GDP is currently $10,800 billion per year and the quantity of money is $540 billion.
a. What is the velocity of money?
b. The nation collectively holds enough money to finance how many days, worth of GDP expenditure?
Homework Answers
Given,
a. Nominal GDP = $10,800 billion
Quantity of money, M = $540 billion
Nominal GDP = Quantity of money * Velocity of money
=> $10,800 billion = $540 billion * V
=> V = $10,800 billion/$540 billion
=> V = 20
Therefore, Velocity of money = 20
b. Daily GDP expenditure = Nominal GDP/365 = $10,800/365 = $29.589 billion
Number of days the GDP expenditure can be financed using the money stock = Quantity of money/Daily GDP expenditure = $540 billion/$29.589 billion = 18.25 days
Ans: 18.25 days
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