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Velocity of Money

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PPGPortal > Home > Concept Dictionary > T, U, V > Velocity of Money
 
 

Velocity of Money

The rate at which money changes hands.

(Gregory N. Mankiw, 2008, Principles of Macroeconomics, Fourth Canadian Edition, Toronto, Ont.: Thomson Nelson, p. 247.)

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To calculate the velocity of money, divide the nominal value of output (nominal GDP) by the quantity of money:

V = (P x Y) / M

where V is the velocity of money, P is the price level (the GDP deflator), Y is the quantity of output (real GDP), and M is the quantity of money.

     

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