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.


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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. Economy

    Economy is the large set of inter-related economic production ...
  2. Inflation

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

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

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

    Gross National Product (or GNP) is an economic statistic that ...
  6. Equilibrium

    The state in which market supply and demand balance each other ...
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