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What is the Velocity of Circulation of Money? Video Lecture | Economics Class 12 - Commerce
FAQs on What is the Velocity of Circulation of Money? Video Lecture - Economics Class 12 - Commerce
| 1. What is the velocity of circulation of money? |  |
Ans. The velocity of circulation of money refers to the speed at which money changes hands within an economy over a specific period. It represents the number of times a unit of currency is spent on final goods and services in a given time frame.
| 2. How is the velocity of circulation of money calculated? | |
Ans. The velocity of circulation of money can be calculated by dividing the nominal GDP (Gross Domestic Product) by the money supply. This is expressed as V = GDP/M, where V represents the velocity, GDP is the nominal GDP, and M is the money supply.
| 3. What factors can influence the velocity of circulation of money? | |
Ans. Several factors can influence the velocity of circulation of money. These include the level of economic activity, consumer confidence, interest rates, inflation, technological advancements, and changes in government policies. When economic activity is high, people tend to spend more, increasing the velocity of money.
| 4. How does the velocity of circulation of money impact the economy? | |
Ans. The velocity of circulation of money plays a crucial role in determining the overall health of an economy. A higher velocity indicates that money is changing hands frequently, leading to increased economic activity. Conversely, a lower velocity suggests that money is being hoarded or not being spent, which can lead to slower economic growth.
| 5. Can the velocity of circulation of money change over time? | |
Ans. Yes, the velocity of circulation of money can change over time. It is not a fixed or constant value and can be influenced by various economic factors. For example, during periods of economic uncertainty or recession, people may hold onto their money more, resulting in a decrease in the velocity. Similarly, during periods of economic expansion, the velocity may increase as spending and investment activities rise.
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