This concept shows the speed in which money is exchanged during a period of time. It is the number of times money is exchanged in a given period of time. Money sitting idle doesn’t add to velocity. On the other hand, the higher times a note (or on an average the entire currencies in supply) travels, it adds to money supply and raises the price level. Hence, price level is not only depended on quantity of money, but also its velocity of circulation.
What are the factors that increases velocity of circulation? The number of ATMs available, electronic money transfer facilities etc. enhances the velocity of circulation.
