Author Question: The velocity of circulation refers to the A) average speed with which the Fed increases or ... (Read 35 times)

geodog55 · **on:** Jun 29, 2018

The velocity of circulation refers to the

A) average speed with which the Fed increases or decreases the quantity of money.
B) ratio between the quantity of money and the price level.
C) average number of times in a year each dollar is used to buy goods and services.
D) average number of times a dollar is deposited and withdrawn from a bank account.
E) average speed with which the nominal interest rate changes when the inflation rate changes.

Question 2

Explain how the purchases of used goods and of financial assets affect GDP.

What will be an ideal response?

ladyjames123 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

Used goods count in GDP for the year in which they were produced. Hence the purchase of a used good is not included in GDP. Purchases of financial assets, such as stocks, are a transfer of funds and not the purchase of a newly produced good or service. When the firm uses the funds it acquires from selling the stocks or bonds to purchase capital, the purchase of the capital will count as investment, but the initial purchase (and sale) of the financial asset itself does not count in GDP.