Velocity of Money is:

The velocity of money is defined as the ratio of nominal Gross Domestic Product (GDP) to the money supply within an economy. It measures how quickly money circulates or is used to purchase goods and services over a specific period. When the velocity of money is high, it indicates that money is changing hands quickly, reflecting strong economic activity and consumer spending. Conversely, a low velocity suggests that money is not being utilized efficiently in the economy, which can signal stagnation or a downturn.

This concept is pivotal in understanding economic dynamics because it highlights the link between economic output and the amount of money in circulation. Analyzing velocity helps economists assess the effectiveness of monetary policy; for example, increasing the money supply may not stimulate the economy if the velocity remains low.

The other options do not accurately describe the velocity of money. The rate of interest between banks pertains to borrowing costs rather than the circulation of money. The total amount of money in circulation, while related, does not take into account how often that money is used. Additionally, the turnover of currency in international markets concerns foreign exchange dynamics, diverging from the domestic measure of money’s velocity.