Velocity of Money

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Profile factors ① residents spending money income levels and the impact of structural changes in the industrial structure and production specialization ② conditions affect the number of units ③ economic and financial market conditions affecting ④ developed financial and settlement systems affect the calculation formula and the reasons for China to examine trends in the money multiplier Expand edit this section Introduction velocity of money is the unit of currency in a given period of turnover (or realized exchange) frequency, which is equal to nominal GDP and the nominal money supply

 

ratio. After exchanging goods to achieve, usually out of circulation into the production or consumption; while money as a means to achieve the medium of exchange of commodities, is constantly in circulation for the realization of commodity exchange services. Within a certain time, a variety of commodity exchange activities have succeeded by the same unit of currency that can be repeatedly commodity exchange services, in order to achieve turnaround times. For example, in a certain period of time,2013 Football Boots Soccer Cleats ShoesNike Mercurial Vapor IX TPU FG Fourth Style CR Exclusive Personal Fluorescent Green Soar Blue , A to B with 10 yuan to buy peanuts, B 10 yuan with which to buy cloth to C, C to D and use it to buy clothes, this 10 yuan currency at a certain period of time to achieve a $ 30 value of the goods , which is three times the velocity of circulation. Edit this paragraph the main factors affecting the economic and psychological aspects, which is the basic economic factors, including: ① residents spending money income levels and the impact of structural changes in normal circumstances, the established income level, consumption structure will not have a big changed. When the income level has improved greatly, the consumption structure parts for luxury goods will increase. Lay up process is not implemented in the purchasing power of residents holding money rate will rise.

velocity of money

This will contribute to slow down the velocity of money. ② industrial structure and specialization of production conditions affect different production cycles of different organic composition of capital between the proportion of different industrial sectors, as well as social production of different levels of specialization, etc., will affect the velocity of money. Long production cycle sector, slow capital turnover, and its currency in circulation is relatively slow; contrary, faster. Sectors with high organic composition of capital, funds used much, so that the velocity of money slows down; contrary, accelerated. Social production specialization finer intermediate products to enter the market more transactions, higher production efficiency, shorten the production cycle, the GNP, the more circulation faster; contrary, is slower. Process of social reproduction all these aspects change, will correspondingly affect the velocity of money, ranging from changes in speed occurs. ③ the number of units and the economic well-developed financial market conditions affecting participation in the operation and the distribution of income greater the number of individuals and businesses, to improve the overall efficiency of society, to accelerate the velocity of money, or to slow the velocity of money. More developed financial markets, commodity trading currency trading outside the footprint, the more money circulation slower; Conversely, the relative speed. ④ financial and settlement systems, such as the impact of a certain period of several carved pay wages each pay period is short, it will

velocity of money

accelerate the velocity of money; contrary, slow. Developed financial sector, to adopt flexible and diverse settlement, reduce capital takes time, you can speed up the velocity of money; contrary, slow. The psychological impact velocity of money is the main factor consumer expectations and the economic situation of monetary and credit notes on the level of trust. Psychological factors include people's payment habits, consumer psychology, values, as well as inflation rates, interest rates and other changes in expectations, but also the government's major policy changes and other political factors, expectations and so on. Psychological expectations lead to changes in behavior, to a certain extent, sometimes even much about people's savings and purchasing behavior, thus affecting the velocity of money. The impact velocity of money many factors intricately intertwined, so that the velocity of money is largely become difficult to study and calculated variables. Edit this paragraph calculation formula of the velocity of money, money circulation from K. Marx formulas transform of the law. The basic law of circulation of money formula is: execution of circulation functions necessary amount of money (M) = the number of pending sales of goods (Q) × Unit commodity price (P)) / namesake currency circulation times (V) ie (

formula 1

Equation 1) transpose the above equation can be derived velocity of money is calculated as: (Equation 2)

Equation 2

According to this formula, you can calculate any time of the actual velocity of money. Plan for the future period for changes in the velocity of money, generally based on the annual pre-or normal velocity of money, based on a comprehensive analysis of the above factors, and then make predictions. Generally arranged in a certain period affect the velocity of money in both positive and negative changes in the various factors, and finally predict the speed of money circulation is presented to speed up or slow down the movements. Calculate the velocity of money, there are two famous formula, ie cash transactions equations and Cambridge equations. CASH TRANSACTIONS I. Fisher equation proposed by American economist, the formula is: MV = PT where M is the quantity of money in circulation, V represents the number of currency circulation, P indicates a general commodity prices, T represents the final products and intermediate products total trading volume. In currency turnover V and its corresponding PT commodity trading volume calculated under the scope of the concept of V represents the velocity of money available, also known as currency trading velocity, which is mainly affected by payment systems and payment habits. Cambridge equation in British economist A. Marshall said the cash balance, based on the formula used by the AC Pigou first proposed, the formula is: M = kpy where M represents the amount of money that people hold, k is the currency accounts national income or GNP ratio, P is the price level of final goods and services, y is national income at constant prices or GNP, P is the nominal income from another angle, it is represented by the velocity of money Cambridge, calculated according to the equation of the velocity of money, denoted by V, also known as the income velocity of money, is the contemporary international monetary velocity about the prevalence of view. Edit this paragraph and the money multiplier money multiplier is defined as the monetary base (high-powered money) based on the money supply through commercial banks deposit money creation function generates a derived deposits in multiples of credit expansion generated by the interaction. According to the money multiplier theory of the formula is:

Equation 3

where, K2 is broad money multiplier, c is the cash leakage rate. rd for the current reserve requirement ratio, t is regular and savings deposits accounted for the proportion of demand deposits, rt for the deposit reserve ratio, e is the excess reserve ratio. Combining (1) and (2) be drawn:

Equation 4

It is obvious that at a certain nominal GDP, the monetary multiplier B, and money velocity V inverse relationship exists between that at a certain level of output, the monetary velocity increases, the money multiplier decreased; vice versa. So to analyze financial innovation velocity of circulation of money, as long as the factors that influence the money multiplier, we can draw the appropriate conclusions. Edit this section to examine the reasons the money supply, real output and price relationship can be the equation of exchange MV ≡ PY, where M is the money supply, V is the velocity of money, P is the average price level,Sale Nike Mercurial Vapor IX AG Volt Cyan Green Blue Black Soccer Cleats 2013 , Y is real output. As can be seen from equation determines a country's price level during certain factors which affect output, not the money supply M, but the money supply and money velocity multiplied currency flows. New monetarist Milton Friedman scholars had thought, because the velocity of money depends on a country's payment habits, financial and monetary system of the transaction and other reasons, it has a highly stability and regularity. He According to the U.S. over the past century's economic statistics, calculated American goods

velocity of money

credits velocity decrease of about one percent per year, but in normal circumstances, similar to the annual change in the velocity of money is minimal. Accordingly, in order to prevent money itself becomes the main source of economic dislocation, Friedman proposed a "single rule" monetary policy, that money supply growth is consistent with economic growth, the money supply (money stock) as intermediate target of monetary policy. We can see that "the single currency rules," the velocity of money is stable as a precondition. China is also the money supply (money stock) as an intermediate target countries, but China is stable velocity of money is only monitoring the money supply, or the need to control money flows worth inspection. Edit this paragraph trends in China by the Fisher equation of exchange MV = PY, the velocity of money can be deduced is calculated as: V = (PY) / M = GDP / M. Different levels of GDP and the ratio of the money supply (GDP/M1, GDP/M2) represents a corresponding level of money supply velocity, which reflects the long-term GDP/M2 the velocity of money, but also the focus of economic research. Throughout the 1993-2004 Chinese money velocity has the following characteristics: (1) Chinese monetary velocity overall trend is downward. 1980-2004, the broad money velocity V2 decreased from 2.70 to 0.54, a decrease of 80%; V1 decreased from 3.93 to 1.42, a decrease of 63.9%, V2 the decline is much larger than V1. But the volatility of V1 is greater than the variance 2,1980-2004 years V1 0.46, V2 variance was 0.40; 1993-2004, V1 V2 volatility is much greater than the volatility, V1 variance of 0.13, 0.029 V2 is the variance 4.5 times higher than V1 V2 therefore better reflect changes in the velocity of money long-term trend. (2) China's money velocity showed significant pro-cyclical. The rate of change in the velocity of money and the rate of decline in the velocity of money and economic growth are closely related. Period of high economic growth, slowing down the velocity of money; economic growth at a low ebb period of accelerated decline in the velocity of money. The annual rate of change of V2, since 1980, there were three non-negative (1988,1994,2004), corresponding to the three economic upsurge period; V1 also shows the same wave characteristics, the extent of reaction strongly than V2; and the two previous , V1 lagged GDP growth reached a peak two years after the wave peak, V2-year lag. The velocity of money and economic growth cycle that is closely related to the economic growth cycle of generation brings logistics to speed up changes in the demand for money and, when strong economic growth, the residents' income increases and inflation is expected to increase, rising consumer desires, to increase the velocity of money. (3) China's large annual changes in the velocity of money, but in recent years there are signs of stabilization. From 1980-2004 the average annual rate of change of V1 6.32%, V2 average annual rate of change of 6.65%; V1 annual maximum rate of change of 11.6% decreased 2.75%, V2 maximum annual rate of change of 14.86%. In the 24 years between 1981-2004, the change rate of more than 8% in 5 years V1, V2 8 years; rate of change of more than 5% in 12 years V1, V2 16 years. But since 2003, the velocity of money has reduced the annual rate of change of signs, 2004 V2 annual change rate was 1.9%, is the most stable since 1981. (4) Chinese money velocity is low compared with some developed countries. In 1993, U.S. nominal GDP was $ 6.553 trillion, M1 balance of $ 1.1284 trillion, V1 is 5.81, while China was 2.12, more than twice as bad; V2 U.S. in 1993 as China's 1.5 times. The velocity of money in each country varies, which each country's economic and financial development level and people's consumption habits and so on. Chinese and Japanese money velocity V2 rather, slightly lower than the United Kingdom, and the United States and emerging countries Korea gap. Meanwhile, developed countries such as the United States is very small fluctuations in the velocity of money from 1993 to 1999 was only 0.0026 V2 variance, which to some extent explains the American higher degree of financial development and economic stability is strong.