Velocity Of Money

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Equation Of Exchange

    An economic equation that showcases the relationship between ...
  2. Money Supply

    The entire stock of currency and other liquid instruments in ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Gross National Product - GNP

    An economic statistic that includes GDP, plus any income earned ...
  5. Economy

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

    A deflationary spiral is when a period of decreasing prices (deflation) ...
RELATED FAQS
  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. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  3. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  4. Is credit a form of fiat money?

    To understand why credit is a form of fiat money, one must first understand what money is. At its most basic level, money ... Read Full Answer >>
  5. What is the difference between fiat money and representative money?

    Fiat money is physical money (paper money and coins), while representative money is something that represents intent to pay ... Read Full Answer >>
  6. How does the balance of trade impact currency exchange rates?

    The balance of trade influences currency exchange rates through its effect on the supply and demand for foreign exchange. ... Read Full Answer >>
Related Articles
  1. Active Trading

    Measure Momentum Change With ROC

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

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  3. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  4. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  5. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  6. Economics

    Gambling on Macau: Too Risky?

    Macau was once heralded as the new Las Vegas for casino investors. Is it too late?
  7. Economics

    When To Expect Fed Liftoff Now

    “When will the Fed raise interest rates?” That has been the question of many investors since the Fed indicated it was prepared to end its zero rate policy.
  8. Economics

    Why Is The Federal Reserve Independent?

    An overview of the independent status of the Federal Reserve and arguments for and against it.
  9. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.
  10. Investing

    The Implications Of Negative Interest Rates

    If financial theory is grounded in one principal, it would be the that individuals prefer consumption today over consumption in the more uncertain future.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center