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The Velocity of Money

By Matthew Kerkhoff

 

We’ve recently received a few questions from subscribers regarding the velocity of money. I thought I would take a moment to describe this measure and its implications for the economy as well as price stability.

 

The velocity of money is typically defined as how quickly money makes its way from one owner to the next. It’s measured as the number of times that one dollar is spent to buy goods and services, per unit of time.

 

A related measure that may help to grasp this concept is that of inventory turnover. A store owner, or frankly, every retailer on the planet, is always interested in the productivity of their inventory. Inventory that sits on the shelves without moving is a drag on the business. As a result, retailers measure inventory turnover, or how many times they sell through their stock of inventory per year.

 

By boosting “turns” as it’s called, a retailer ... Log in or subscribe to continue reading.


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