Velocity of M2 Money Supply.St. Louis Federal Reserve Bank
Due to the fact that 2007, the velocity of money has fallen significantly as the Federal Reserve significantly expanded its balance sheet in an effort to combat theinternational financial crisisand also deflationary pressures.
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Money velocity showed up to have bottomed out at 1.435 in the second quarter of 2017 and also was gradually rising until the worldwide recession triggered by the COVID-19 pandemic spurred enormous UNITED STATE Federal economic stimulus. At the finish of the second quarter of 2020, the M2V was 1.100, the lowest reading of M2 money velocity in history.
The velocity of money approximates the motion of money in an economy—in other words, the number of times the average dollar changes hands over a solitary year. A high velocity of money suggests a bustling economic situation via strong economic activity, while a low velocity suggests a general reluctance to spend money.
The velocity of money is calculated by splitting a country's gross domestic product by the complete supply of money. This calculation deserve to usage either the M1 money supply, which contains physical currency, checkable deposits, and particular various other figures, or the M2 supply, which also includes savings deposits and money industry funds.
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The velocity of money in the USA dropped sharply during the initially and second quarters of 2020, as calculated by the St. Louis Federal Reserve Bank. While there is no definitive explanation, the loss is most likely because of the diminished activity incurred in the time of the COVID-19 pandemic, as well as a rise in consumer savings due to financial uncertainty.