JAMB Economics 2023 Paper

Concept:Velocity of money measures how frequently one unit of money is used to purchase goods and services within a period.Explanation:It is derived from the equation of exchange: $MV = PY$.Here, $M$ is the money supply, $V$ is velocity, $P$ is the price level, and $Y$ is real GDP.Solving for velocity gives $V = \frac{PY}{M}$.Since $PY$ is nominal GDP, velocity equals nominal GDP divided by the money supply.In real terms, this is $V = \frac{Y}{M/P}$, which is real GDP divided by real money supply.Therefore, the correct definition is the ratio of real GDP to the real money supply.Answer:D. The ratio of real GDP to the real money supply.