What is the speed of money?
The speed of money is the speed with which the money moves in the economy. The distribution of the value of all transactions of the economy is calculated by the total amount of money available. The result is a number that describes how many times a piece of money has been spent for a certain period of time - usually one year. If everyone starts with 20 Wampum beads, the total amount of money available in the economy is 60 beads. This number is also called money supply. If each of these fertile authors buy a book from both others for 10 beads, each individual still has 20 beads, but 60 beads were purchased. If they repeat this behavior every three -month season, the economy will maintain 240 ball purchases in the year. This number is equivalent to the gross domestic manner (GDP) of the national economy.
The speed of money in the example of the economy is calculated by the distribution of gross domestic product by money supply. Divide 240 beadsThe year by 60 beads and you get the result "4 per year". Note that the final result does not contain currency; It could refer to individual beads, chains of five or ten beads, or even an estimate of an observer about the value of beads in dollars. The only unit is the space in which the transaction takes place. This number means that the average piece of currency changes hands four times during the year.
The same simple calculation can be done to determine the speed of money 2008 in the United States. According to Factbook CIA, the United States had a $ 14.61 trillion (USD) and a cash supply of $ 1,436 trillion. The speed of money was therefore 10.17. This means that the average dollar in the economy has changed its hands approximately ten times. Of course, this final number is a very rough estimate, because in practice it is difficult to take into account every transaction. The black market itself is a large source of rapid currency turnover that was not represented in the official GDP.
the speed of money is still considered importantCalculation of economists because it can help predict economic results. All others are the same, the high speed of money is considered good because it suggests the existence of a healthy and productive economy. However, the high speed of money can also indicate the existence of inflation, as money spreads faster when people have to use more in the transaction.