Velocity of Money


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Related to Velocity of Money: Money multiplier

Velocity of Money

The rate at which money changes hands. For example, assume an economy with $100 and two people in it. In a given year, if Person A charges Person B $50 for a widget, and Person B charges Person A $100 for a whatsit, then $150 worth of transaction has occurred even though there are only $100 in the economy. This means that, on average, one dollar is spent one and a half times in a year, expressed as a velocity of 1.5/year. Velocity of money is useful as a measure of how strong and/or liquid an economy is, and it is usually compared with some figure such as GDP or money supply.
References in periodicals archive ?
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.
Companies making so-called "mobile wallets," such as (http://www.ibtimes.com/square-mobile-wallet-company-led-twitter-co-founder-jack-dorsey-now-valued-325-billion-790096) Jack Dorsey's Square , promise to shake up our entire conception of "financial services" by vastly increasing the velocity of money. But by their very nature as emerging technologies, something like a mobile wallet has yet to show its true economic impact.
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).