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Essay / Research Paper Abstract
This 3 page paper explains what is meant by the income velocity of money, how this fits in with other economic theories and demonstrates how this can be calculated. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEincvel.rtf
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Unformatted sample text from the term paper:
money is the way in which classical economist believe that inflation worked in an economy as part of an economic cycle. This originated from the Fisher Equation of Exchange which
had the equation of MV = PT (Nellis and Parker, 2000). M is the amount of money which is in circulation, V is the speed at which it circulates,
P is the average price and T is the number of transactions which take place. In short this theory means that an increase in the money supply would result in
inflation. Therefore, the role of government can also be seen in controlling the money supply so that inflation does not become out of control. Keynes did not agree, he look
at the same equation and argued, using the same equation that that if there was an increases in the money supply it may be matched by a decrease in the
velocity in which it moved around the economy and as such there may not be inflation. Additionally, he argued there may also be a case where an increase in the
money in circulation also results in an increase in transactions rather than the price in that side of the equation. Key to any study of the income velocity of
money is the need to see where this is important in terms of general economic theory. The measure of the velocity of
money is a simple calculation, it is the gross domestic product as a ratio to the money supply. The velocity is a measure of the level of activity in a
market with a set money supply. The money supply can be measured in a number of ways, M1 and M2 are the most common measures, M1 is the notes and
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