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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 accompanying table provides money supply and GDP information in 2013 for six countries.

Country National Currency M1 (billions in national currency) Nominal GDP (billions in national currency)
Egypt Egyptian pounds 431 1,753
South Korea Korean won 515,643 1,428,294
Thailand Thai bhat 1,608 11,898
United States U.S. dollars 2,832 16,800
Kenya Kenyan pounds 967 3,797
India Indian rupees 19,118 113,550
Table

Calculate the velocity of money for each of the countries. Round your answers to the nearest tenth.

Country M1 (billions in national currency) Nominal GDP (billions in national currency) Velocity of money
Egypt 431 1,753
South Korea 515,643 1,428,294
Thailand 1,608 11,898
United States 2,832 16,800
Kenya 967 3,797
India 19,118 113,550
Table
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The velocity of money is defined as nominal GDP divided by the quantity of money. For example, the velocity of money in Egypt is 1,753/431 = 4.1. The velocity of money for each of the countries is shown in the accompanying table. For further review see the section, “Monetarism.”
Calculate the velocity of money for each of the countries. Round your answers to the nearest tenth.
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      Country Nominal GDP per capita (U.S. dollars)
      Egypt 3,225
      South Korea 24,328
      Thailand 5,674
      United States 53,101
      Kenya 1,016
      India 1,504
      Table

      In the table below rank the countries in descending order (1 being the highest and 6 being the lowest) of velocity of money and per capita income.

      Country Velocity of Money Per Capita Income
      Egypt
      South Korea
      Thailand
      United States
      Kenya
      India
      Table

      Would you expect wealthy countries to have more sophisticated financial systems?
      Rank in descending order of velocity: Thailand, India, United States, Egypt, Kenya, South Korea. Rank in descending order of per capita income: United States, South Korea, Thailand, Egypt, India, Kenya. According to the above rankings, wealthy countries, with the exception of South Korea, tend to have a higher velocity of money than do poor countries, but the relationship is not exact. Prior to the financial crisis, South Korea had a much higher velocity of money. Since the crisis, South Korea saw their money supply increase from 77,274 billion won to 515,643 billion won. Prior to the financial crisis in 2007, South Korea had a velocity of money greater than 10. One would expect wealthy countries to have more sophisticated financial systems.For further review see the section, “Monetarism.”
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