The velocity of money gives clues about the economy | Bot To News

I’m often asked what I think about where the economy is going, and unfortunately I don’t have a crystal ball, but I do have several benchmarks to help determine the direction the economy might be headed. One of these criteria is the velocity of money.

The velocity of money is the rate at which money is used in the economy. It is calculated by dividing GDP (gross domestic product) by (opens in a new tab) with money supply (M1 & M2). Both M1 and M2 can be used for calculation purposes. Think of M1 as a more focused number. This includes cash and transaction deposits, while M2 is larger and includes savings, CDs, and money markets. GDP is the value of all goods and services in the economy.

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