Macroeconomics
5th Edition
ISBN: 9781319098759
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 17, Problem 9P
To determine
Concept Introduction:
Quantitative theory of money: it states that any change in the money supply leads to a change in the aggregate price level in an economy. It means the money is neutral and the
Velocity Equation: It shows the relation between the real output level and the quantity of money supply in the economy.
The formula to show the relation is:
Here,
- M is the quantity of money.
- V is the velocity of money.
- P is the aggregate price level.
- Y is the output level.
Velocity of money ( V ): It is defined as the total number of times a unit of account moves in an economy to buy goods and services.
The formula to calculate velocity of money is:
Here,
- M is the quantity of money.
- V is the velocity of money.
- Y is the real GDP
Money supply ( MS ): It is the quantity of money present in the economy. It is controlled by the central bank of the country.
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