Question

Velocity is:

a. Y/(M x P) and increases if dollars are exchanged less frequently.
b. Y/(M x P) and increases if dollars are exchanged more frequently.
c. (P x Y)/M and increases if dollars are exchanged less frequently.
d. (P x Y)/M and increases if dollars are exchanged more frequently.

Answer 1

d

Step-by-step explanation:

Solution:-

- The Quantity of theory of money states:

M * V = P * Y

Where,

M = Money supply

V = Velocity of money exchange

P = The price level

Y = Real GDP

- By re-arranging the formula and solving for "V" we have:

V = P*Y / M

- The expression on right hand side increases if exchange of dollars increases.