Income Velocity of Money


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Income Velocity of Money

In economics, the number of times one unit of currency is spent over a given period of time. It is indicative of how much economic activity occurs or is possible at a certain level of money supply. The income velocity of money tends to rise and fall concurrently with interest rates. It is calculated thus:

Income velocity of money = GDP / money supply (however defined).
References in periodicals archive ?
Besides, since the income velocity of money is defined as the speed with which money changes hands, then it is likely that the behavior of the firm and agent must be more explicitly expressed in the equation of exchange as consumption and firm behavior would change when the price level, income, money or the interest rate change in the economy.
Solving equation 10 for Y and multiplying both sides by P/M, yields the derived income velocity of money (V):
The money supply determined out side the system that is it is exogenous, income velocity of money is independent of the other variables in the identity (1), Y is real income.
The income velocity of money is defined as income divided by a particular monetary aggregate.
First, the money supply is already increasing at a higher rate than the production potential plus the change in the income velocity of money plus the allowable level of the increase in the price level.
The decline in the income velocity of money during the 1980s is proof that the long recovery was not a Keynesian demand phenomenon.
The difference between the two was multiplied by the product of income velocity of money gave that gave the extent of the underground economy.
Where P is the price level, M is a monetary aggregate, V the income velocity of money and Y is output at constant prices.
This paper utilizes cointegration and error correction modeling to investigate the role of institutional factors in explaining the long-run behavior of the income velocity of money in five industrialized countries.
The Long Run Behavior of the Income Velocity of Money in Five Advanced Countries, 1870-1975: An Institutional Approach.
Even though reference is made in the paper regarding the theoretical linkage between changes in velocity resulting from changes in asset demand for money, the evidence regarding the behaviour of velocity over the last two decades is not clearly linked to the theoretical proposition by which speculative expenditures affect the demand for money and consequently the income velocity of money.
But Friedman continued to argue, along with other monetarists, that the income velocity of money is sufficiently stable that the equation of exchange can be a non-tautological "quantity theory of money" model of the macroeconomy.