Velocity of money

The circulation rate (also turnover ) of money is the frequency with which the existing money supply is average implemented within a year. The speed at which encompasses all of payment, with cash circulate relatively slower than demand deposits, which are used much more frequently than the payments for cash - with increasing tendency.

As a universal medium of exchange, money must circulate among the economic operators of its currency area. Thus, an economy is functioning normally, the velocity of money must be as constant as possible.

The velocity of money is essential in addition to the money supply for the general price level. An increase in the velocity of circulation acts as well as an increase in the money supply on the price level -increasing ( inflationary ), a reduction in the velocity of circulation as well as a decrease in the quantity of money price level lowering ( deflationary ).

In-depth definition

Under the circulation rate is the ratio of the macroeconomic sum of all assessed in real money transactions ( purchases) or a total economic income variable to overall economic stock of money. Today you look at most a form of income velocity in which an aggregate income size - in particular, the gross national income - is related to the money supply. Since there are different concepts of macroeconomic money supply, the various forms of circulation rate also differ according to the used measure of the money supply.

With an abbreviation for nominal gross national product, and for the different types of money and with, and for the associated orbital velocities is valid

Controversial is the question of the long-term trend shows the income velocity of money. The answer to this question depends, among other things, of the chosen monetary concept. In many developed economies today shows a falling trend, for individual nations (such as the UK ) there was but earlier periods of longer-term stability. For a long-term U- shaped curve has been demonstrated for a number of OECD countries. partially shows a rising trend.

Velocity of circulation of money supply M2 in the U.S. 1959-2012

Rotational speed of the MZM in the U.S. 1959-2012