# Analysing the velocity of money

• Jun 10th 2013, 11:13 AM
Magie305
Analysing the velocity of money
If anyone of you know how to do this, please help me! I will be so thankful

The table below presents the calculation of money velocity "V" for three countries: Poland in 2006, US in 2009 and Colombia in 2010. The Gross Domestic Product of each country is provided an then the value of monetary aggregates at the end of the corresponding year (note: each country displays a slightly different method of communicating monetary aggregates, so only M1 is uniformly available in all the three cases). Explain the relationshio between GDP and the supply of money. why is the supply of money systematically lower than GDP? Why is the velocity of money different across countries?

 Poland,2006,millions of polish zlotys US,2009,billions of US\$ Colombia,2010,millions of US\$ GDP 1 060 031,0 14 119,0 283 109,0 M0[end of the year] 86 825,7 n.a. 29 769,5 M1[end of the year] 275 830,9 1 693,6 62 090,6 M2[end of the year] 481 210,5 8 530,9 n.a. M3[end of the year] 495 309,5 n.a. 220 063,9 Velocity of M0 12,21 n.a. 9,51 Velocity of M1 3,84 8,34 4,56 Velocity of M2 2,20 1,66 n.a. Velocity of M3 2,14 n.a. 1,29
• Jun 10th 2013, 05:20 PM
chiro
Re: Analysing the velocity of money
Hey Magie305.

Calculate the ratios of GDP to Money supply and interpret the results.
• Jun 11th 2013, 11:08 AM
Magie305
Re: Analysing the velocity of money
Yeah, but I have no idea how to do that :( It's like black magic for me... I'm going to have this task on my exam and I'll be so grateful if sombody can do it.
• Jun 11th 2013, 05:38 PM
chiro
Re: Analysing the velocity of money
Compare GDP/M1 with velocity 1 and GDP/M2 with velocity 2 and GDP/M3 with velocity 3.
• Jun 12th 2013, 01:10 AM
Magie305
Re: Analysing the velocity of money
Ok, and what about these questions : Explain the relationshio between GDP and the supply of money. Why is the supply of money systematically lower than GDP? Why is the velocity of money different across countries? How can I answer them? I know that I already seem like witless to you :) but I really have no idea about it..
• Jun 12th 2013, 03:28 AM
chiro
Re: Analysing the velocity of money
Look at the definition of velocity: Wikipedia says its the ratio of the GDP against the money supply.

In other words Velocity = GDP/Money_Supply (Money Supplies include M1 M2 M3).

This is if Wikipedia is correct.
• Jun 12th 2013, 09:47 AM
Magie305
Re: Analysing the velocity of money
Ok, thank You, I will try to do sth with it.. the other problem is that I have to write it in the form of essay.. :(