To Describe: The amount of money one has at a particular point of time, by the
Answer to Problem 1TY
The individual’s velocity of money for the particular year is
Explanation of Solution
The relationship between the
Where
M is the money supply
V is the velocity of money
P is the general price level
Y is the total output.
The supply of money is represented by
Hence in order to calculate the velocity of money, Eq (1) is rewritten as follows:
Here
The individual’s velocity of money is calculated as follows:
The cash in hand the individual was having during the past 12 months is
The savings in saving institutions and banks is
Thus, the total money the individual is having is
GDP of that particular year is
The individual’s velocity is calculated by substituting these values in Eq (3) as follows:
Therefore, the individual’s velocity of money for the particular year is
U.S.’s velocity of money for the particular year is calculated as follows:
Therefore, U.S.’s velocity of money for the particular year is
Hence following are the conclusions:
- Individual’s velocity of money for the particular year is
- U.S.’s velocity of money for the particular year is
Therefore, the velocity of money of U.S. differs from that of the individual.
Introduction: The total amount of money with banks and other saving institutions, that is in circulation as well as in savings, is referred as
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