Question

1.Explain the meaning of the velocity of money and discuss the factors upon which its magnitude depends?

2. Elucidate the expenditure and income approach to measure GDP

Answer 1

1. The price velocity of money is a measure of how fast the money changes hands over time.It greatly depends on the value of money. It also refers to the amount of goods and services that can be purchased with the same amount of money in a given time.

some of the factors on which it depends:

1. value of money-inversly proportional, ie when value of money increases the velocity decreases.

2. Money supply- velocity of money inversly proportional to money supply in economy.

3. Regularity of income- The more the income recieved by people the greater the velocity of money.

4. payment system- velocity of money depends on the income paid to the workers.

5. Volume of trade- directly proportional, as trade increases the velocity of money also increases.

2. Expenditure and income method to measure GDP:

• Approximates the value of all final goods and services.
• expenditure approach begins with money spent on goods and services.
• income approach starts with income earned.
• formula for measuring GDP using income approach :total national income+sales tax+depriciation+net foreign factor income.
• formula for measuring GDP using expenditure approach: consumers+business+goverment+net exporters.
• Income approach measures the total incomes eaarned by the households in a country.
• While expenditure approach measures total amount of money spent on goods in a country.

Hope this was helpful!