Velocity of Money Calculator
Calculate how many times money circulates in an economy using price index, transaction volume, and money supply
Calculate Velocity of Money
Average price level of goods and services
Total number of transactions in the economy
Total amount of money circulating in the economy
Velocity of Money Results
Formula used: V = T / M = (P × N) / M
Calculation: 0.00 = ($0 × 0) ÷ $0.00
Interpretation: Money changes hands 0.00 times per year
Economic Analysis
Example Calculation
Small Economy Example
Scenario: Small community with 4 people and $1,000 in circulation
Price Index (P): $15 per transaction
Transaction Volume (N): 6 transactions per year
Money Supply (M): $30 in total circulation
Calculation
Total Transactions (T) = P × N = $15 × 6 = $90
Velocity of Money (V) = T ÷ M = $90 ÷ $30
V = 3.0 times per year
This means each dollar changes hands 3 times annually
Factors Affecting Velocity
Transaction Frequency
More frequent transactions increase velocity
Economic Confidence
Higher confidence leads to more spending
Interest Rates
Lower rates encourage spending over saving
Technology
Digital payments can increase velocity
Economic Insights
Higher velocity generally indicates a healthier economy
Velocity is inversely related to money demand
Central banks monitor velocity for monetary policy
Velocity can predict inflationary trends
Understanding Velocity of Money
What is Velocity of Money?
The velocity of money measures how many times a unit of currency is used to purchase goods and services within a given time period. It represents the rate at which money circulates through the economy.
Why is it Important?
- •Indicates economic activity levels
- •Helps predict inflation trends
- •Guides monetary policy decisions
- •Measures economic efficiency
Formula Components
V = T / M = (P × N) / M
V: Velocity of money
T: Total value of transactions
P: Average price level (price index)
N: Volume of transactions
M: Money supply in circulation
Quantity Theory of Money
The velocity of money is central to the quantity theory of money, which states that changes in money supply affect price levels proportionally, assuming velocity remains constant.