the quantity of money was growing at 8.3 percent a year,the nominal interest rate was 9.5 percent a year ,real GDP grow at 5.0 percent a year, andthe inflation rate was 3.1 percent a year. the velocity of circulation, and its change was

Answer 1

To calculate the velocity of circulation, we can use the equation:

Velocity of Circulation = (Nominal GDP / Money Supply)

First, let's calculate the nominal GDP growth rate using the inflation rate and real GDP growth rate:

Nominal GDP growth rate = Real GDP growth rate + Inflation rate
= 5.0% + 3.1%
= 8.1%

Next, let's calculate the change in the money supply using the quantity theory of money:

Change in Money Supply = Money Supply growth rate - Inflation rate
= 8.3% - 3.1%
= 5.2%

Now, we can calculate the velocity of circulation:

Velocity of Circulation = (Nominal GDP / Money Supply)
= (1 + Nominal GDP growth rate) / (1 + Change in Money Supply)
= (1 + 8.1%) / (1 + 5.2%)
= 1.081 / 1.052
≈ 1.0264

Therefore, the velocity of circulation is approximately 1.0264, and its change is the difference in velocity from previous periods.