1. The quantity equation links velocity, real income, prices, and _____.
Money
2. If the growth of the money supply is 5 percent a year, velocity changes by 1 percent, and real
output changes by 5 percent, the inflation rate equals _____ percent.
(money supply + velocity changes – real output changes = inflation rate)
5 + 1 – 5 = 1
3. VELOCITY OF MONEY IN THE UNITED STATES.
The following table shows M1 and M2 balances and nominal GDP for 1980 and 2000. All figures
are in billions of dollars.
M1
M2
NOMINAL GDP
1980
273.4
1,591.3
2,789.5
2000
383.7
4,656.7
9,817.0
Use the table to calculate the velocity of M1 and M2 in both years.
According to this data, the velocity of M1 is _____ than the velocity of M2, and the velocity of
money has _____ between 1980 and 2000.
Greater than, increased
4. VELOCITY AND NEW INVESTMENT OPPORTUNITIES FOR HOUSEHOLDS.
Suppose the introduction of new personal investment opportunities for households led them to
