income velocity of circulation

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The ratio of national income to the stock of money, on some definition of money supply. This is considerably smaller than the actual velocity of circulation, as there is a high ratio of total transactions to income in a modern economy: firms buy factor inputs in one set of markets and sell outputs in another, and there is a large quantity of trade in intermediate products. In any case there is a far larger volume of transactions on capital account than on income account.

Subjects: Economics.

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