Quantity of Money (M) × Velocity of Money (V) = Real GDP (Y) × Prices (P). Prices = Quantity of Money × Velocity of Money / Real GDP. So, prices increase when the product of the money supply and its velocity grows faster than real GDP. Likewise, for changes in these economic variables: ΔM + ΔV = ΔP + ΔY.

.Velocity. the number of times in a year that an “average” dollar gets spent on goods and services; for example, if the velocity of money is 2, then every dollar in an economy gets used twice in a year.Money neutrality. the concept that money only impacts nominal variables, not real variables, in the long run; in other words, increasing the money supply might decrease the nominal. M is the money of supply. Thus, the Velocity of money is simply calculated by dividing the money supply with the economy’s GDP. Certain factors that influence the velocity of money are Value of money, Volume of trade, Frequency of the number of transactions and Credit facilities Business Conditions among others. Money supply × velocity of money = price level × real GDP. Previously we discussed this equation as an identity—something that must be true by the definition of the variables. Now we turn it into a theory. To do so, we make the assumption that the velocity of money is fixed. This means that any increase in the money supply must increase the. If the money supply increases by a greater amount than nominal GDP, velocity will decline. Suppose the money supply M has been growing at 10% per year, and nominal GDP, PY, has been growing at 20% per year.

Enter the GDP and the money supply into the calculator to determine the velocity of money.

Money Supply Vs Money Velocity

Velocity of Money Formula

The following formula is used to calculate the velocity of money. How do developers earn money from free apps.

VoM = GDP / MS

Where VoM is the velocity of money
GDP is the gross domestic product
MS is the money supply

Velocity of Money Definition

A velocity of money is defined as the ratio of the gross domestic product of a country to its money supply. In other words how fast money moves through its economy.

Velocity of Money Example

Money Supply Vs Gdp

How to calculate the velocity of money?

First, determine the GDP.
Calculate the GDP using the calculator linked above or through research. For this example, we will say the GDP is $1,000,000.00 (This is not realistic and will be much more for most countries).
Next, determine the money supply.
For this example we will assume the money supply is $500,000.00.
Finally, calculate the velocity of money.
Using the formula we find the velocity of money to be 1,000,000/500,000 = 2 (200%)

Money Supply Velocity And Real Gdp Formula Chart

FAQ

What is velocity of money?

Money Supply Velocity And Real Gdp

The velocity of money is the measure or the rate at which money is moved or exchanged throughout the economy of a given country. It can also be used to describe the number of times a unit of a specific currency is used in a given time.