velocity investment & finance definition

The rate at which a given dollar changes hands during a certain period of time. The faster money turns over, the higher the velocity. A higher velocity is associated with a higher dollar volume of transactions and could lead to inflation. Velocity is calculated by dividing gross domestic product by money supply. Economists who subscribe to monetarism believe that the changes in velocity are fairly predictable, and they study the causes of money growth and changes in velocity to estimate future economic growth.