The "velocity" of money is

1. Analyze the question You're asked to identify the correct definition of the velocity of money from the options given.

2. Explain the concept Velocity of money (V) is the average number of times a unit of currency (e.g., one naira) is spent on goods and services in a given period.

From the equation of exchange:

MV = PT (or MV = PY, where Y is real GDP)

Rearranging:

V = PY / M

Here, PY is nominal GDP and M is the money supply. If we divide both the top and bottom by the price level P:

V = (PY/P) / (M/P) = Y / (M/P) = real GDP ÷ real money supply

3. Check each option

• A. Real money supply ÷ real GDP: This is the inverse of velocity (this is the Cambridge "k", the fraction of income people hold as money). Not velocity.
• B. Money supply × price level: This is not a meaningful measure of velocity.
• C. Money supply ÷ price level: This is just the real money supply (M/P), not velocity.
• D. Ratio of real GDP to real money supply: V = Y ÷ (M/P). This matches our derivation.

4. Answer

5. Tip Remember that velocity is "how fast money turns over", so it is income ÷ money, never money ÷ income. Option A is the trap, because it flips the ratio. If you see "money ÷ income", think Cambridge k = 1/V.