In a macroeconomic context, choose the best definition for the term "velocity".

The rate at which DGP increases in a year.

The speed of capital accumulation.

The rate at which money circulates through an economy.

The rate at which the Federal Reserve increases or decreases the money supply.

The rate at which the aggregate price level increases.

Assume the following about Mushroom Kingdom: there 13719 gold coins in circulation, nominal GDP 86722 gold coins, the central bank of Mushroom Kingdom increases the number of gold coins in circulation by 2.4% each year, and GDP increases by 4.8% annually.

Calculate the velocity for Mushroom Kingdom.

Question

Xzavier Ayala

Business

28 April, 12:09

In a macroeconomic context, choose the best definition for the term "velocity".

The rate at which DGP increases in a year.

The speed of capital accumulation.

The rate at which money circulates through an economy.

The rate at which the Federal Reserve increases or decreases the money supply.

The rate at which the aggregate price level increases.

Assume the following about Mushroom Kingdom: there 13719 gold coins in circulation, nominal GDP 86722 gold coins, the central bank of Mushroom Kingdom increases the number of gold coins in circulation by 2.4% each year, and GDP increases by 4.8% annually.

Calculate the velocity for Mushroom Kingdom.

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Answers (1)

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Lizeth Anderson · Answer 1

The rate at which money circulates through an economy.

The velocity in the Mushroom Kingdom, is 6.3213

Explanation:

The equilibrium quantity in the money market is determinated as the product between the money stock (the gold coins in this case) and the money velocity

GDP = demand of money (as we need money to purchase the goods and services)

money stock = 13,719

velocity = demand / money stock

86,722/13,719 = 6.3213