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Velocity of Money

Velocity of Money

Abbreviation
V
Parent term
Money Supply

The Velocity of Money (V) is equal to GDP divided by the Money Supply (M)

V = GDP / M

Equation of Exchange :  M & V = GDP


  • What determines Velocity is how productive new debt is
  • If debt is productive and generates an income stream to pay off the debt, velocity will go up
  • If debt is unproductive and doesn't generate sufficient income, velocity will go down


  • The Velocity of Money in the US has dropped significantly since the 1990s
    • This is a symptom that we have been taking on too much debt (it is not productive

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