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 ?
It is clear now that the percentage change in exchange rate (dE/E) is equal to (i) home country's percentage change in money supply minus the foreign country's percentage change in money supply plus (ii) percentage change in velocity of circulation of money supply in the home country minus percentage change in velocity of circulation of money supply in the foreign country plus (iii) percentage change in the foreign GNP minus that of the home country.
Is the velocity of circulation of other monetary aggregates more stable than the velocity of M1?
except during transition periods) the volume of trade, like the velocity of circulation of money, is independent of the quantity of money.

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