What are the factors influencing velocity of money?

1. Money Supply:

Velocity of money depends upon the supply of money in the economy. If the supply of money in the economy is less than its requirements, then the velocity of money will increase and if the money [supply is less than its requirement, the velocity of money will fall.

2. Value of Money:

The velocity of money is high during inflation when value of money decreases because people will like to part with money as soon as possible. Similarly, during deflation, when the value of money rises, the velocity of money is low because people like to keep money with them.

3. Credit Facilities:

The velocity of money increases with the expansion of lending and borrowing facilities in the country. Therefore the growth of credit institutions has a favorable effect on the velocity of money.

4. Volume of Trade:

As the volume of trade increases the number of transactions and the velocity of money increases and as the volume of trade decreases, the velocity of money decreases.

5. Frequency of Transactions:

With the increase in the frequency of transactions, the number of payments and receipts increases and, as a result, velocity of money increases. Similarly, with the decrease in the frequency of transactions, the velocity of money decreases.

6. Business Conditions:

The velocity of money increases during the period of hectic business conditions and decreases during slump conditions.

7. Business Integration:

If business is vertically integrated, the velocity of money will be less and if business is vertically disintegrated, the velocity of money will increase.

8. Payment System:

The velocity of money is also determined by the frequency with which the labour force is paid (i.e., weekly or monthly) and the speed with which the bills for goods are settled.

9. Regularity of Income:

If people receive income at regular intervals, they will spend their income more freely and the velocity of money will increase. But, if people receive their income at irregular intervals, they will prefer to hold more cash balances to meet the uncertain conditions in future and the velocity of money will fall.

10. Propensity to Consume:

Greater the tendency of the people to consume, other things remaining the same, higher will be the velocity of money. On the contrary, lower the propensity to consume, lesser will t3 the velocity of money. Saving, or not consuming, has an adverse effect on the velocity of money.