Monetarists believed for a period of time that the velocity of money was stable
ID: 1194512 • Letter: M
Question
Monetarists believed for a period of time that the velocity of money was stable within a country. However, with financial innovation, the velocity began shifting around erratically after 1980. As would be expected, the velocity of money is different across countries depending upon the sophistication of their financial systems-velocity of money tends to be higher In countries with developed financial systems. The carom paying table provides money supply and GD? information in 2013 for six countries. Calculate the velocity of money for: each of the countries. The accompanying table shorn GDP p r capita for each of these countries In 2013 in U.S. dollars. Rank the countries in descending order of per capita income and velocity of money. Do wealthy countries or poor counties tend to "turn over' their money more times per year? Would you expect wealthy countries to have more sophisticated financial systems?Explanation / Answer
Velocity of money = GDP / Money supply.
a) Velocity of money for the year 2013:
Egypt: 1753 / 431 = 4.03.
South Korea: 1,428,294 / 515,643 = 2.76
Thailand: 11,898 / 1,608 = 7.39
United States: 16,800 / 2832 = 5.93
Kenya: 3,797 / 967 = 3.92
India: 113,550 / 19,118 = 5.93.
b) Ranking descending order of per capita:
United States: $53,101
South Korea: $24,328
Thailand: $5,674
Egypt: $3,225
India: $1,504
Kenya: $1,016
Ranking descending order of velocity of money:
Thailand: 7.39
United States: 5.93
India: 5.93
Egypt: 4.03
Kenya: 3.92
South Korea: 2.76.
Compartively poorer countries tend to "turn over" their money more times per year as per the statistics in the above table. In fact, wealthy countries do have more sophisticated financial systems than developing nations.
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