Velocity Of Money


DEFINITION of 'Velocity Of Money'

The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money.


Loading the player...

BREAKING DOWN 'Velocity Of Money'

Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation. Economies that exhibit a higher velocity of money relative to others tend to be further along in the business cycle and should have a higher rate of inflation, all things held constant.

  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Money Supply

    The entire stock of currency and other liquid instruments in ...
  3. Equation Of Exchange

    An economic equation that showcases the relationship between ...
  4. Gross National Product - GNP

    Gross National Product (or GNP) is an economic statistic that ...
  5. Economy

    The large set of inter-related economic production and consumption ...
  6. Deficit

    The amount by which a resource falls short of a mark, most often ...
Related Articles
  1. Economics

    What's the Velocity of Money?

    The velocity of money measures the rate at which money goes from one transaction to another in an economy.
  2. Active Trading

    Measure Momentum Change With ROC

    Learn how to build a price rate of change indicator and incorporate it in your strategy.
  3. Trading Strategies

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  4. Investing

    What a Fed Delay Means for the ECB & BoJ

    The Fed’s continued delay has repercussions for more than just the U.S. economy and markets. The ECB and the BoJ may support the case for stocks in Europe.
  5. Economics

    Understanding Income Inequality

    Income inequality refers to the uneven distribution of income across a single economy.
  6. Economics

    Who is a Hawk?

    In the economic sense of the word, a hawk is someone who believes high interest rates should be maintained to keep inflation low.
  7. Investing Basics

    Explaining Fixed Exchange Rates

    A government using a fixed exchange rate has linked the value of its currency to the value of another country’s currency, or the price of gold.
  8. Investing

    Latin America’s Economic Forecast

    After a ten-year run, the economies of Latin America are in a decline. For sustainable, long-term growth, the region needs structural reforms.
  9. Economics

    Why the Euro Failed to Become the World's Reserve Currency

    Examine the current state of the U.S. dollar as the world's reserve currency; learn the major reasons why the euro has failed to replace it in that capacity.
  10. Economics

    Should the Fed Be More Worried About Asset Bubbles?

    While the Fed should be concerned that assets bubbles might impact economic stability, monetary policy is not the best tool to mitigate this threat.
  1. What precise measures are implemented in most monetary policies?

    Monetary policy refers to the efforts by governments or central banks to influence economic activity through the money supply. ... Read Full Answer >>
  2. Who decides to print money in Russia?

    The Central Bank of the Russian Federation (CBRF), like its peers in most countries, is the governmental entity responsible ... Read Full Answer >>
  3. Who decides to print money in Canada?

    In Canada, new money comes from two places: the Bank of Canada (BOC) and chartered banks such as the Toronto Dominion Bank ... Read Full Answer >>
  4. Who decides when to print money in India?

    The Reserve Bank of India, or RBI, manages currency in India. The bank's additional responsibilities include regulating the ... Read Full Answer >>
  5. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  6. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!