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If Bob and Jane do the same two transactions every month, their ' GDP ' will be $2,400 per year, though the money supply is only $100. The equation for GDP is: GDP = Money Supply x Velocity of Money. To solve for velocity in our example, we rearrange the equation to get Velocity = GDP / Money Supply, or ($2,400 / $100).
The quantity theory of money (sometimes called QTM) says that prices rise when there is more money in an economy and they fall when there is less money in an economy. The following formula expresses the theory: M x V = P x T. Where M = the money supply. V = the velocity of money. P = average prices. T = number of transactions in the economy.
The theory is a component of classical economics, but it has less relevance and more controversy today. In particular, some economists argue that the theory really only 'works' over the long term, if at all. The neutrality of money is a theory stating that changes in the money supply only affect prices and wages rather than overall economic ...
Velocity is the speed at which money passes through the hands of one person or company to another. When money is spent quickly, it encourages growth in GDP. When money is saved and not spent, the GDP of the country slows. Through quantitative easing, the Federal Reserve tries to counteract falling velocity by increasing the money supply.
Lower the discount rate. Each of these choices creates easy money and creates a chain reaction. For example, when the FOMC (an agent of the Federal Reserve) purchases U.S. Treasuries in the open market, it gives money to the sellers. The sellers deposit these payments at their local banks. Because the Federal Reserve requires banks to maintain ...
When people spend less and save more, the velocity of money falls and drags down economic growth. Through quantitative easing, the Federal Reserve will try to counteract falling velocity by increasing the money supply. It has two primary tools with which to do it. The first way the Fed manages money supply is via the federal funds rate. Banks ...
Volume. Voodoo Accounting. Voodoo Economics. Voting Shares. Vulture Fund. InvestingAnswers' glossary of financial definitions and business terms that begin with the letter "V".
TTM is a helpful statistic for reporting, comparing, and contrasting financial figures. For example, an analyst issuing a report on October 15, 2019 will report trailing twelve months (TTM) earnings as those from October 1, 2018 to September 30, 2019. The analysts can, in turn, compare those earnings with other companies' TTM figures within a ...
As a quick example of how call options make money, let's say IBM (NYSE: IBM) stock is currently trading at $100 per share. Now let's say an investor purchases one call option contract on IBM at a price of $2 per contract. Note: Because each options contract represents an interest in 100 underlying shares of stock, the actual cost of this option ...
Fiat money allows the declaring government to employ virtually any material, such as paper (which is lightweight and convenient for carrying), as a medium of exchange. However, since the value of fiat money lies solely in the faith of those using it, its value can be easily diminished and result in rapid inflation. Fiat money refers to any ...