The velocity of money is a measurement of the rate at which money is exchanged in an economy. It also refers to the rate at which consumers and businesses in an economy collectively spend money.
The velocity of money is usually measured as a ratio of gross domestic product to a country's M1 or M2 money supply.
The velocity of money is important for measuring the rate at which money in circulation is being used for purchasing goods and services. It is used to help economists and investors gauge the health and vitality of an economy.
High money velocity is usually associated with a healthy, expanding economy. Low money velocity is usually associated with recessions and contractions.
Economists use the velocity of money to measure the rate at which money is used for goods and services in an economy.