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How to determine the velocity of money

How to determine the velocity of money

The velocity of money - this is the frequency with which each monetary unit used to implement over time of goods and services (year, quarter, month).

In other words, the number of revolutions made by the money in circulation and used for the purchase of finished goods and services.



If you want to determine the velocity of circulationmoney, refer to the Fisher equation of exchange. The desired value will be determined by the formula V = PQ / M, where P - the average level of prices for goods and services, the Q - the volume of goods and services sold in the reporting period (in physical terms), M - the average money supply in circulation.


The determined rate of speedturnover of money characterizes the level of intensity of use of the stock of money in circulation to pay for traded goods and services. This indicator is closely linked to the circulation of money and depends primarily on the frequency and volume of trade transactions carried out by each subject of economic turnover. However, non-commodity payments (budget, credit, etc.) are able to exert influence on the velocity of money. This is especially noticeable at an average rate of turnover, which is the sum of the duration of storage of money available to buyers of goods and services and the duration of their stay in the public system, banks, etc. If the money is retained in the second group of subjects, the duration of turnover increases, thus decreasing the velocity of circulation.


the velocity of money can also be definedin another way, namely, the average turnover rate of the monetary unit in the payment of income of the population, ie in the creation of national income. It is calculated as a ratio of national income to the mass of money in circulation.


Furthermore, the velocity of money can be foundat an average frequency of use of the monetary unit in the implementation of all payments. In this case, it is defined as the total amount of money turnover ratio and the stock of money in circulation.


the velocity can be determined andfrequency pass cash through cash banks. It is calculated by dividing the total cash turnover of all the banks in the average annual amount of cash.

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