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Well, actually velocity of money can be defined as the average number of time a unit of currency changes hand (by involving in a transaction) in a year. It could theoretically be measured if all transactions where centrally registered. In practice, accurate measurement is impossible, not just because of more or less shadow cash transactions, but also because the volume of data for registered transactions (cards, checks) is to large to centralize.

But this intuitive meaning helps you understand some extreme cases of the equation of money (like, in times of hyper inflation, cash burns your hands, you want to change it for material goods immediately, and the velocity of money increases greatly)


by Pierre on Sun Oct 7th, 2007 at 04:03:11 PM EST
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