The Implications of Velocity... John Mauldin explores the velocity of money & what is means for the economy... "when we talk about the velocity of money, we are speaking of the average frequency with which a unit of money is spent... Note that (with one exception in the 1970s) velocity drops during a recession. What is the Fed response? An offsetting increase in the money supply to try and overcome the effects of the business cycle and the recession... If velocity falls then money supply must rise for nominal GDP to grow. The Fed attempts to jump-start the economy back into growth by increasing the money supply"...(4+*)
John Mauldin's The Implications of Velocity