chap 18

[salj67]

How much weightage doea this chap have?
I am very weak with this topic? Is it ok if i bunk the chap?

 

[Anna Walklate]

Module 18 isn't one of the most heavily examined parts of the course, but questions on it do come up.

I assume you're expecting a reply from another student though as you wouldn't be expecting a tutor to recommend ignoring a whole module

 

[salj67]

Some relief though!

 

[salj67]

What is V exactly in the formula MV=PY?

 

[Charlie]

V is the velocity of circulation of money and relates to how often money changes hands.

The notes say that it might be thought of as the average number of times that the money is spent on goods and services in a year.

 

[Graham Aylott]

V, the velocity of money, represents the number of times each unit of money is spent on goods and services each year, ie it is the "velocity" or "speed" at which each unit of money circulates around the economy.

If the volume of goods and services purchased each year increases by 10% and the money supply also increases by 10%, then the number of times each unit of money is spent will be the same, ie the velocity of circulation is unchanged.

 

[salj67]

Ya so if 10% more goods and services are being bought money will also change hands more by 10%, why not?
Plus its not always necessary that an increase in money supply would lead to an equal increase in the value of goods and services purchased, isnt it?