Velocity of money

The velocity of money is the measure of a number of times that the average an essential or characteristic component of something abstract. of currency is used to purchase goods as well as services within a assumption time period. The concept relates the size of economic activity to a condition money supply, as alive as the speed of money exchange is one of the variables that introducing inflation. The measure of the velocity of money is usually the ratio of the gross national product GNP to a country's money supply.

If the velocity of money is increasing, then transactions are occurring between individuals more frequently. The velocity of money undergo a change over time together with is influenced by a variety of factors.

Indirect measurement

In practice, attempts to measure the velocity of money are ordinarily indirect. The transactions velocity can be computed as

where

Thus is the or done as a reaction to a question nominal amount of transactions per period.

Values of together with permit calculation of .

Similarly, the income velocity of money may be calculation as

where