velocity of circulation


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velocity of circulation

a measure of the average number of times each MONEY unit is used to purchase the year's output of final goods and services (GROSS DOMESTIC POLICY). If, for example, the total value of final output is £100 billion and the total MONEY SUPPLY is £10 billion, then, on average, each £1 unit has changed hands ten times.

There is some controversy between the monetarist proponents of the QUANTITY THEORY OF MONEY and Keynesian economists about the stability of the velocity of circulation of money. Monetarists (see MONETARISM) hold that the velocity of circulation is stable or changes only slowly over time and so argue that there is a direct link between the money supply and the price level, and the rate of growth of money supply and rate of INFLATION. Keynesian economists (see KEYNESIAN ECONOMICS) argue that the velocity of circulation is unstable and that it can change rapidly, offsetting any changes in the money supply.

References in periodicals archive ?
285) attributes the MV and DU notation to John Pease Norton's Statistical Studies in the New York Money Market (1902), without mentioning the earlier appearance of that equation and notation in Fisher (1897)--or mentioning that Norton (1902) was a Yale doctoral dissertation by one of Fisher's students and junior colleagues, who repeatedly cited Fisher on velocity of circulation (Norton 1902, pp.
Inflation will not be a problem next year but beyond that timeframe it could well return as a recovery sets in and the velocity of circulation picks up.
In the next section (Section II) we present the increase or decrease of money supply effected by this monetary authority in the traditional structure of analysis, and then we examine the efficacy of the controlling and regulating power of the Fed when we factor in velocity of circulation of money in the electronic transaction conduits.
currency is held abroad), we see that its velocity of circulation (nominal GDP divided by M1 *) has changed over the past century.
the level of prices varies directly with the quantity of money in circulation provided the velocity of circulation of that money and the volume of trade .

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