What is the Velocity of Circulation of Money? Video Lecture | Economics Class 12 - Commerce

the velocity of money measures the rate
at which money goes from one transaction
to another in an economy in simple terms
it's how often and how quickly a dollar
changes hands usually if money
circulates through an economy at faster
speeds the economy is seeing more
transactions and is probably healthier
than an economy with a slower velocity
of money a faster velocity also means
businesses are further along in the
business cycle which leads to price
increases and a higher rate of inflation
to understand the concept consider a
very small and simple economy that
includes only three entities a grocer a
rancher and a farmer they have 50
dollars between them which the grocer
just happens to own the grocer pays the
rancher $50 for meat she wants to sell
at her store the rancher pays the farmer
50 dollars for some grains of fetus
livestock the farmer then pays the
grocer $50 for groceries she needs to
feed her family
the original $50 bought $150 worth of
goods by changing hands three times the
velocity of money in this economy is
three the figure can be viewed as the
money supplies rate of turnover velocity
of money is usually measured as a ratio
of GNP to a country's total supply of
money investors can use it to gauge how
robust an economy is
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