Question

Explain how both a change in velocity of money and the actions of the Federal Reserve contributed to the 1982 recession in the U.S. Compare your answer to the actions taken with regards to the 2008 Financial Crisis (this one you may want to consult with chapters 1 through 8 of the Akerlof, Blanchard, Romer and Stiglitz book).

Answer 1

Money speed is a measure of the exchange rate in the economy. This is the number of times that money goes from one entity to another. It also refers to the amount of money used for a given period. Simply put, this is the speed at which consumers and businesses in the economy gather money. Money velocity is measured as the ratio of GDP to the supply of money M1 or M2.

Money speed is important in measuring the rate at which money in circulation is used to buy goods and services. It is used to help economists and investors assess the health and fitness of the economy. High money speeds are usually associated with healthy economic growth. Low money speeds are usually associated with downsides and contractions.


Money speed is an indicator calculated by economists. It shows the speed at which money transactions are made for goods and services in the economy. Although not necessarily an important economic indicator, it can be followed by other key indicators that help determine economic health, such as GDP, unemployment and inflation. P. S. White and the money supply are two components of the money speed formula.

An economy that expresses the speed of money more than others is often developed. Money speed is known to vary with business cycles as well. When the economy is growing, consumers and businesses tend to spend more money, which leads to an increase in money speed. When the economy goes down, consumers and businesses are generally more likely to spend, and the speed of money is lower.

Because the speed of money is usually related to the business cycle, it can also be compared with key metrics. So the pace of money will usually increase with GDP and inflation. On the other hand, it is expected that it will fall when key economic indicators such as GDP and inflation fall in the contracting economy.