But a lower income
velocity of money in larger and developed states indicates economic activity is indeed slowing down.
First, changes in the income
velocity of money in response to variations in interest rate and other arguments of the money demand function which are independent of the changes in income.
In respect of
velocity of money in the underground economy, it is assumed to be the same as of the
velocity of money in the official economy.
(3) In other words, they failed to recognize how excessive increases in the nominal stock of money affect the
velocity of money and the price level; they overlooked the dynamic theory of money.
Nominal GDP =
velocity of money x money multiplier x monetary base cc (3)
Taxing the
velocity of money is aimed at achieving fiscal consolidation.
Deep fear of losing their investments, their cash savings and livelihood drives people to horde assets, limiting the supply and
velocity of money circulating in the economy.
To get at the monetary nature of inflation and deflation, economists can divide price changes into two components: excess-money growth and changes in the
velocity of money. Excess-money growth is simply the difference between the growth of money and the growth in real output.
This identity conveys the notion that the quantity of money (M) times the
velocity of money (V) is equal to the value of nominal spending in the economy (PY).
If there is an excess demand for money, the
velocity of money decreases.
The problem is that the
velocity of money has fallen to its lowest level in the US since the last quarter of 1964 just before US defense spending went haywire during the US offensive in Vietnam.(Velocity is simply how quickly money changes hands).