Question

All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $699 billion, and the velocity of money is 16?

Answer 1

The velocity of money is a measure of how rapidly (on average) these dollar bills change hands in the economy. It is calculated by dividing nominal spending by the money supply, which is the total stock of money in the economy .

These discussions are sometimes conducted in terms of the following equation:

MV = PY.

Here M is a measure of the money supply .

V its velocity.

Nominal GDP is written as the product of the overall price level (P) with real GDP (Y).

So If  the central bank increases the money supply by $699 billion

The velocity of money is 16

Then Nominal GDP will rise by the $699 * 16

= $ 11,184