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27 November, 17:49

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.

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  1. 27 November, 18:54
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    d

    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.
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