If an economy has a velocity of circulation of 3, then
A) in a year the average dollar is exchanged 3 times to purchase goods and services in GDP.
B) nominal GDP is 1/3 the size of the quantity of money.
C) the quantity of money is $3 for every dollar of GDP.
D) the quantity of money is 3 times real GDP.

Question

Quizplus · Accepted Answer

Velocity of circulation refers to the average number of times a dollar is spent over a period of time, usually a year. Therefore, if the velocity of circulation is 3, it means that on average, each dollar is spent three times in a year to purchase goods and services in real GDP.

If an Economy Has a Velocity of Circulation of 3