Answer to Question #110016 in Macroeconomics for sarai

Question

In a large economy such as ours, it is impossible to simply count how many times each dollar changes hands (velocity). How do we calculate V?

Answer 1

We calculate velocity V using Fisher formula: $V = \frac{P×Q} {M}$, wher M is money supply, P is price level, Q is quantity of output produced in the economy.