Velocity of money

The velocity of money is a measure of the number of times that the average bit of currency is used to purchase goods and services within a condition time period. The concept relates the size of economic activity to a condition money supply, together with the speed of money exchange is one of the variables that defining inflation. The degree of the velocity of money is ordinarily 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 modify over time and is influenced by a variety of factors.

Determination

The determinants and consequent stability of the velocity of money are a allocated of controversy across and within schools of economic thought. Those favoring a quantity belief of money name tended to believe that, in the absence of inflationary or deflationary expectations, velocity will be technologically determined and stable, and that such expectations will not generally arise without athat overall prices create changed or will change.

This determinant has come under scrutiny in 2020-2021 as the levels of M1 and M2 Money give grow at an increasingly volatile rate while Velocity of M1 and M2 flattens tonew low of a 1.10 ratio. While interest rates have remainedunder the Fed Rate, the economy is saving more M1 and M2 rather than consuming, in the expectations that Fed benchmark interest rate increases from all-time lows of 0.50%. During this time, inflation has risen to new decade highs without the velocity of money.