What is the Velocity of Money?
The Velocity of Money refers to the rate or pace at which there is an exchange of money. In other words, it measures how frequently there is movement of money between transactions.
Also, it determines the usage of one unit of currency in a specific time frame. Talking in a layman's language, it acts as the rate or pace at which individuals shell money.
[Note: when the local economy is experiencing a decline in the small business sector, the pace of the exchange of money declines and the Velocity of Money in our local economy slows. Increased levels of homelessness, poverty, crime, misery evident everywhere is the result.
The only way to remedy that decline is by implementing programs and policy changes that serve to Restore the Velocity of Money through our local economy as the first step in Renewing Our Community.]
It [the Velocity of Money] is ascertained by dividing gross national product of a nation [or a local economy] with its total money supply. Velocity has a huge role to play when it comes to ascertaining the rate at which money is moving from one person to another. This enables investors in determining the economic strength of a nation [or a local economy], and also acts as a major element in calculating the inflation phase of an economy [as would be evidenced by the price of housing].
Velocity of money is the rate that involves the exchange of money in an economy.
As the velocity rate tends to be fluctuating, it gets hard to derive between inflation and the value of money.