BharatNotes Velocity
noun (uncountable); in full: 'velocity of money' or 'velocity of circulation'Usage in a UPSC answer
The RBI's post-demonetisation monetary policy calculus was complicated by the sharp temporary fall in the velocity of money as Rs. 15.44 lakh crore in high-denomination notes were withdrawn from circulation in November 2016, causing the MV = PT identity to produce deflationary pressures despite unchanged money supply targets.
Synonyms
Antonyms
Word Family
velocitous (rare adjective), velocity of circulation (full phrase), income velocity (variant), Quantity Theory of Money (related proper noun)
Root
Latin velocitas = speed, swiftness; from velox = swift (root vel- related to volare = to fly)
Etymology
The concept was formalised by Irving Fisher in 'The Purchasing Power of Money' (1911) as part of the Quantity Theory equation MV = PT (Money × Velocity = Price level × Transactions). Milton Friedman later argued that velocity was relatively stable in the long run, making money supply the key determinant of inflation. Empirical instability of velocity — especially after financial innovation and mobile payments — has complicated monetarist prescriptions and is a recurring theme in contemporary monetary economics.
Memory Hook
VELOCITY of money is its SPEED through the economy. Imagine a Rs. 100 note: if it buys chai, the chai-wallah pays rent, the landlord buys groceries, the grocer pays a supplier — each transaction adds to GDP. High velocity = that note moves fast and does a lot of work. Low velocity = it sits idle under a mattress.
Seen in UPSC Question Papers
- Prelims 2024 — Physical Geography
Real UPSC previous-year questions whose text uses “Velocity” — proof this word earns its place on your list.
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