Velocity of Money Calculator

What is the Velocity of Money?

The velocity of money is a measure of how quickly money circulates through the economy. It indicates how often one unit of currency is used to purchase domestically-produced goods and services within a given time period. A higher velocity suggests more economic activity, while a lower velocity may indicate economic slowdown.

How to Use This Calculator

1. Enter the Nominal GDP for the desired period (typically a year). This is the total value of all goods and services produced in an economy, valued at current market prices.
2. Enter the Money Supply for the same period. This represents the total amount of money available in an economy.
3. Click the "Calculate" button to compute the velocity of money.
4. The result will be displayed as the ratio of GDP to money supply.

Understanding the Results

The formula used is: Velocity of Money = Nominal GDP / Money Supply

For example, if a country's nominal GDP is $1 trillion and its money supply is $100 billion, the velocity of money would be 10, meaning each dollar is used to purchase goods and services 10 times during the period.

Limitations

While useful for economic analysis, the velocity of money is an aggregate measure and doesn't account for distributional aspects of the economy. It also doesn't distinguish between different types of money (M1, M2, etc.) which can affect the calculation.