Velocity Of Circulation

Velocity Of Circulation

Velocity of Circulation, the number of times a unit of money is transferred between the money balances (bank deposits and cash) held by individuals, businesses and institutions in a given period. The velocity of all money units is an average of their average velocity. Coin and note balances circulate faster than bank balances, current account bank balances faster than deposit account balances. Some money may be held idle over the whole period. The more economically money balances are used, the larger the value of transactions which a given stock of money can support. This is implicit in the equation of exchange MV = PT, where M stands for the stock of money, T for total transactions occurring during the period, P for the general level of prices, and V for the velocity of circulation of money.

The degree to which money balances are so used depends on the forms of financial organization (in integrated firms entries replace money), the frequency with which payments are made, changes in the general price level and business conditions, and the structure of interest rates (which reflects the 'cost' of holding money balances idle).

Vital Statistics, (a) narrowly, the measures of birth rates, death rates, marriage rates, etc., relating to the population; (b) more generally, the key indexes in the economy production, income, expenditure, prices, money supply, exports, imports, etc. Since the end of World War II there was a vast increase in the collection of vital statistics. They are mostly measures of national totals (or averages) and form part of the increasing attention on macro-economics and are subject to its limitations: they supplement but do not replace micro-economics, the study of individual behaviour without which the meaning of macro-economics cannot be assessed.

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