Abstract
The velocity of circulation of money is V in the identity of exchange
which is due to Irving Fisher (1911). On the left-hand side, M is the stock of money capable of ready payment, i.e. currency and demand deposits, or, in modern parlance, M 1, on the right, P is the price level and T stands for the volume of trade. PT is usually identified with total transactions at current value, which must be identically equal to total payments. All these variables are aggregates. The identity defines V as PT/M, that is the ratio of a flow of payments to the stock of money that performs them; its dimension is time−1.
This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman
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Cramer, J.S. (1987). Velocity of Circulation. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_1354-1
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DOI: https://doi.org/10.1057/978-1-349-95121-5_1354-1
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