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

Question

Quizplus · Accepted Answer

The velocity of circulation is defined as the number of times one unit of currency is used to purchase goods and services within a given time period. If the velocity is 3, it means that on average, each dollar is used three times in a year to buy goods and services that are part of the GDP.

If an Economy Has a Velocity of Circulation of 3