Given: Particulars – Rs in crores Consumption (C) – 500 Investment (I) – 150 Govt. Expenditure (G) – 140 Exports (E) – 80 Imports (M) – 60 Money Supply (Ms) – 162 The velocity of money in the economy is:

Question

Accepted Answer

To determine the velocity of money in the economy, we use the formula for the velocity of money (V), which is given by:

$$ V = \frac{GDP}{Ms} $$

Where GDP (Gross Domestic Product) is the total value of goods and services produced in the economy, and Ms is the money supply.

In this scenario, GDP can be calculated using the expenditure approach, which is the sum of Consumption (C), Investment (I), Government Expenditure (G), and Net Exports (Exports (E) - Imports (M)):

$$ GDP = C + I + G + (E - M) $$

Substituting the given values:

$$ GDP = 500 + 150 + 140 + (80 - 60) $$
$$ GDP = 500 + 150 + 140 + 20 $$
$$ GDP = 810 $$

Now, we substitute the GDP and Money Supply (Ms) into the velocity of money formula:

$$ V = \frac{810}{162} $$

Calculating the above expression:

$$ V = 5 $$

Thus, the velocity of money in the economy is 5, which corresponds to Option 1.

**Explanation for why each option is correct or incorrect:**

1. **Option 1 (5):** This is the correct answer because, as calculated above, the velocity of money is indeed 5 when using the given values for GDP and money supply.

2. **Option 2 (3):** This option is incorrect because if the velocity were 3, it would imply a GDP of $ 3 \times 162 = 486 $, which does not match the calculated GDP of 810.

3. **Option 3 (7):** This option is incorrect because if the velocity were 7, it would imply a GDP of $ 7 \times 162 = 1134 $, which exceeds the calculated GDP of 810.

4. **Option 4 (9):** This option is incorrect because if the velocity were 9, it would imply a GDP of $ 9 \times 162 = 1458 $, which is significantly higher than the calculated GDP of 810.

Therefore, based on the calculations and logical reasoning, Option 1 is the correct answer.