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Velocity of Money

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The velocity of money — also known as the velocity of circulation — is the average number of times a unit of money is spent during a specific period of time.

The velocity of money is associated with the amount of economic activity within a given money supply.

The formula for the velocity of money is:

V = T / M

V is the velocity of money. T is the total value of transactions that occurred during a particular time period (annual for instance). And M is the amount of money in circulation.

To calculate the velocity of money for the United States, you would take its GDP (the total value of transactions in a particular year) divided by M1 (the money supply).

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