JAMB Economics 2010 Paper

Concept:The velocity of money measures how quickly money circulates through an economy in a given period.Explanation:It relates the total money value of goods and services produced in an economy to the stock of money available.Let $M$ represent the money supply and $V$ represent the velocity of money.Let $P$ represent the price level and $Y$ represent real output, so $PY$ is the nominal GDP.From the equation of exchange, $MV = PY$.Making $V$ the subject gives $V = \frac{PY}{M}$.Therefore, the velocity of money is equal to nominal GDP divided by the money supply.Answer:$V = \frac{\text{Nominal GDP}}{\text{Money supply}}$