The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money. Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services, as this helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation.

Economies that exhibit a higher velocity of money relative to others tend to be further along in the business cycle and should have a higher rate of inflation, all things held constant. Simply put, the velocity of money can be thought of as the turnover of the money supply. For this application, economists use broad measures of money supply: M1 is defined by the Federal Reserve as the sum of all currency held by the public and transaction deposits at depository institutions. M2 adds in savings deposits, time depositsand real money market mutual funds.

There are differing views among economists as to whether velocity of money is a useful indicator of the health of an economy or, more specifically, inflationary pressures. The "monetarists" who subscribe to the quantity theory of money argue that money velocity ought to be stable absent changing expectations, but a change in money supply can alter expectations and therefore money velocity and inflation.

For example, an increase in the money supply should theoretically lead to a commensurate increase in prices because there is more money chasing the same level of goods and services in the ways to receive money on paypal. The opposite should happen with a decrease in money supply.

Critics, on the other hand, argue that in the short termthe velocity of money is highly variable, and prices stock market velocity definition resistant to pollo tropical stock market, resulting in a weak and indirect link between money supply and inflation.

Empirically, data suggest that the velocity of money is indeed variable.

Bulkowski's Price Velocity

Moreover, the relationship between money velocity and inflation is also variable. For example, from through the end ofthe velocity of M2 money stock averaged 1.

Sincehowever, the velocity of money has fallen dramatically as the Federal Reserve greatly expanded its balance sheet in an effort to combat the global financial crisis and deflationary pressures.

As of the first quarter ofM2 velocity was just 1.

Velocity Definition - aqasesuyohaw.web.fc2.com

Over the past 20 years, the correlation between M2 and core inflation in the United States is about 0. Dictionary Term Of The Day.

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