Velocity of Money

The velocity of money refers to how frequently a unit of currency is used to buy goods and services within a specific period. It measures the efficiency of money in fueling economic activity; higher velocity indicates money is changing hands rapidly, supporting more transactions and economic growth. Conversely, a lower velocity suggests money is circulating slowly, which can signal economic slowdown or caution. Essentially, it quantifies how active and dynamic the flow of money is in an economy, linking monetary supply to actual economic output and consumer spending patterns.