If in a given year, 4 cars were sold for $5000 each and the velocity of money was 2 times, then what was the quantity of money in the economy?
Question
If in a given year, 4 cars were sold for $5000 each and the velocity of money was 2 times, then what was the quantity of money in the economy?
Solution
The velocity of money is the rate at which money is exchanged from one transaction to another. It's calculated as:
Velocity of Money = Total Transactions / Quantity of Money
We are given that the velocity of money is 2 times and 4 cars were sold for 5000 = $20000.
We can rearrange the formula for the velocity of money to solve for the quantity of money:
Quantity of Money = Total Transactions / Velocity of Money
Substituting the given values into the formula:
Quantity of Money = 10000
So, the quantity of money in the economy was $10000.
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