Chapter 5, Problem 1QQ

To determine

The velocity of money.

Answer to Problem 1QQ

Option ‘c’ is the correct answer.

Explanation of Solution

Option (c):

The velocity of money can calculated using the following equation:.

$\text{V}=\frac{\text{PT}}{\text{M}}$ (1)

Here,

V is the velocity of money.

 P is the price

T is the number of transactions, and

M is the money supply.

Now, substitute the respective values into Equation (1).

$\begin{array}{c}\text{V}=\frac{\left(50\times 4\right)}{100}\\ =2\end{array}$

Therefore, the velocity of money is 2. Thus, option (c) is correct.

Option (a):

The velocity of money supply can be calculated using the following equation:

$\text{V}=\frac{\text{PT}}{\text{M}}$ (1)

Now, substitute the respective values into Equation (1).

$\begin{array}{c}\text{V}=\frac{\left(50\times 4\right)}{100}\\ =2\end{array}$

Therefore, the velocity of money is 2. Thus, option (a) is incorrect.

Option (b):

The velocity of money supply can be calculated using the following equation:

$\text{V}=\frac{\text{PT}}{\text{M}}$ (1)

Now, substitute the respective values into Equation (1).

$\begin{array}{c}\text{V}=\frac{\left(50\times 4\right)}{100}\\ =2\end{array}$

Therefore, the velocity of money is 2. Thus, option (b) is incorrect.

Option (d):

The velocity of money supply can be calculated using the following equation:

$\text{V}=\frac{\text{PT}}{\text{M}}$ (1)

Now, substitute the respective values into Equation (1).

$\begin{array}{c}\text{V}=\frac{\left(50\times 4\right)}{100}\\ =2\end{array}$

Therefore, the velocity of money is 2. Thus, option (d) is incorrect.

Economics Concept Introduction

Velocity of money supply: Velocity of money supply indicates that the number of times an unit of money changes hands in a given period of time.