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To: Sober who wrote (72005)2/2/2009 11:19:27 AM
From: tom popeRead Replies (1) | Respond to of 118717
 
I can't do better than plagiarize Investopedia. For practical purposes it means that if velocity picks up, so will inflation as it works on that huge pile of M2.


What Does Velocity of Money Mean?
A term used to describe the rate at which money is exchanged from one transaction to another.

Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is. It is usually measured as a ratio of GNP to a country's total supply of money.



To: Sober who wrote (72005)2/2/2009 1:29:17 PM
From: OblomovRead Replies (1) | Respond to of 118717
 
Sober, velocity of money is the average number of times each dollar in the economy changes hands in a year. It is a number calculated from money supply and GDP. Velocity can't be measured directly.

nominal GDP (i.e. not inflation adj.) = (money supply) * (velocity)

We could debate what the definition of money supply is, but households are spending less than a year ago. Thus despite the higher money supply, nominal GDP is down.


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