The Review of Economics and Statistics Vol. 31 No. 2 1949
A Note on Velocity
Abstract
R EFERENCES to the velocity of circulation of money sometimes imply that movements of V are accurate guides to shifts in the aggregate-expenditure function. Among the varieties of economic analysis in which identity of velocity changes and aggregatedemand-schedule changes has been implicitly assumed are controversy concerning the validity of the lack-of-investment-opportunity theory of business downturns2 and speculation concerning the behavior of velocity in a Iooper-cent-reserve monetary system.3 As various economists have pointed out, however, changes in V are not necessarily accurate guides to changes in the aggregate-demand schedule. In a fractional-reserve system, movements of the investment and consumption functions may be expressed by expansion and contraction of M as well as by rises and falls in V. All that is required in the case of M's expansion is that excess reserves exist; and not even that is required when 11f falls. The implications that these conclusions have for statistical arguments concerning the lackof-investment-opportunity theory of recessions are obvious. Even if records were to show that
- DOI
- 10.2307/1927867
- Volume
- 31
- Issue
- 2
- Pages
- 153
- Sources
- openalex crossref