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Velocity (of Money)

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Velocity (of Money)
A term used to describe the rate at which money is exchanged from one transaction to another.
    
Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is. It is usually measured as a ratio of GNP to a country's total supply of money. The velocity of money is computed by dividing the nation's output of goods and services (Gross Domestic Product) by the total Money Supply (or circulating Currency plus checking account deposits). Velocity of money is also influenced by Interest rates. When rates are Low, people hold more money in Cash; when rates are rising, they put more money in Interest paying investments.
Posted by  Henley & Partners Group Holdings Ltd
 
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