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The Complete Idiot's Guide to Economics, 2nd Edition by Tom Gorman

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In Circulation: The Velocity of Money

In 2001, M-1—the money used to purchase goods and services—amounted to about $1.1 trillion. In 2009, M-1 totaled about $1.6 trillion. M-1 represents a measure of the amount of money in the economy, and we know that money exists to facilitate transactions. We also know that the transactions in the economy add up to gross domestic product (GDP). If that’s so, then what is the relationship between the stock of money as expressed by M-1 and GDP?
The stock of money constantly flows through the economy, circulating and repeatedly changing hands in transactions until the end of the year, when all those transactions add up to GDP. If GDP in 2001 was about $10 trillion and the stock of money was about $1.1 trillion, ...

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