2 Velocity,cont. Use nominal GDP as a proxy for total transactions. Then, V= PxY M where P price of output (GDP deflator) quantity of output (real GDP) PxY value of output (nominal GDP) CHAPTER 7 Money and Inflation slide 15 CHAPTER 7 Money and Inflation slide 15 Velocity, cont. ▪ Use nominal GDP as a proxy for total transactions. Then, P Y V M  = where P = price of output (GDP deflator) Y = quantity of output (real GDP) P Y = value of output (nominal GDP) 2