When estimating the effect of changes in the money supply to changes in nominal GDP, it is common to assume that the velocity of money is constant.

The velocity of money is a measure of average number of times per year that a dollar is exchanged.

The quantity theory of money states that the money supply multiplied by the velocity of money is equal to the price level multiplied by output.
( )
Price level multiplied by output is the nominal output. Therefore, a percent change in the money supply added to a percent change in the velocity is equal to a percent change in nominal output.
( ).

In order to make calculations easier it is often assumed that the velocity of money is constant. If this is true, any changes in the money supply would directly and proportionately change nominal GDP. If the economy is at full employment it can further be assumed that real output is fixed. Therefore any change in the money supply will subsequently change the price level. Unfortunately......

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Title: The Constant Velocity Of Money
Approximate Word Count: 724
Approximate Pages: 3 (250 words per double-spaced page)

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