Velocity of Money
What is Velocity of Money?
How many times a unit of money is spent on final goods and services in a period.
Understanding Velocity of Money
Velocity equals nominal GDP divided by the money supply. If GDP is $30 trillion and the money supply is $15 trillion, each dollar is spent on average twice a year.
Velocity changes with interest rates, payment technology and confidence; it fell sharply in 2020 as people held more cash.