Question

In a macroeconomic context, choose the best definition for the term velocity. The rate at which the aggregate price level increases. The rate at which money circulates through an economy. The speed of capital accumulation. The rate at which GDP increases in a year. The rate at which the Federal Reserve increases or decreases the money supply.

Answer 1

The rate at which money circulates through an economy.

Step-by-step explanation:

In Macroeconomics, the term velocity refers to the speed at which money circulates in an economy, and it is a variable in a fundamental macroeconomic equation, the quantity theory of money equation:

M x V = P x T

Which states that the price of goods and services is equal to the amount of money in an economy, or its money supply (M) multiplied by the Velocity of circulation of money, which is in turn equal to price (P) multiplied by the number of transactions (T).