Money Circulation

1. TOPIC:
THE IMPACT OF CIRCULATION
VELOCITY ON THE MASS AND STABILITY
OF MONEY .
THE MECHANISM OF STABILITY
ENSURING.
Made by:
Matveev V.
Raku O.

2. WHAT DOES IT MEAN?
 The velocity of money characterizes the
frequency with which each unit present in the
circulation of money is used on average for the sale
of goods and services for a certain period (year,
quarter, month).

3. MONETARY CIRCULATION
 Monetary Circulation is not a simple repetition of
the circulation of goods but subjects to its specific
law. Its essence is that during this period for
circulation is required only some, objectively
determined mass of purchasing and payment
means. If we formalize the essence of the law, it
can be expressed by the equation:
Ma = Mr
Where:
Ma - the actual mass of money in circulation;
Mn - objectively required for circulation.

4. If Ma exceed Mr - in circulation appeared extra money,
and
if Ma less then Mn - its scersity.

5. The most difficult issue in understanding of the laws of
money is the interpretation of value Mr. This is
explained by a great variety of forms of money in
circulation, and a large number of factors that influence
the formation of their mass.
The dependence of the price level from the money
supply is determined by Fisher formula:
MV = PQ
Where:
P - price of goods;
Q - the number of products offered in the market.

6.  If it is known the total number of products on the market in
the country and the price at which they are sold, it is possible
to calculate the necessary quantity money in circulation.
 Fisher formula shows that if the prices of goods in the country
grow, it is necessary to increase the mass of money in
circulation. Otherwise there will be a deficit of money. Such a
situation occurred in Ukraine in 1993, as a result of the
liberalization of prices, thet rose sharply, and the state did not
have time to bring them in accordance with the money supply.
In this situation, the government is forced to enter the larger
notes.

7.  Velocity of money -is a factor that
influences the money supply - that
is, their heavy traffic in the
performance of such functions as
circulation and payment.
 To calculate this figure is used
indirect methods, including:

8. I
 The velocity of money in circulation of the value of
social product or profit circulation which is defined as
the ratio:
Gross national product or national income
Money Supply (aggregates M1 or M2)
 This indicator shows the relationship between money
circulation and economic development processes.

9. II
 The rotation of the money in Payment turnover is
determined by the relation:
The amount of money in bank accounts
The average quantity of money in circulation
 This indicator shows the speed of non-cash payments.
Are also used other indicators.

10.  But as the velocity of money is inversely proportional to
the amount of money in circulation, accelerating of
their turnover means an increase in the money supply.
The increased money supply at the same amount of
goods and services in the market leads to a
depreciation of money, that ultimately is one of the
factors in the inflation process. That is, the velocity of
money circulation affects the stability of cash.
 Based on the task of regulation of effective demand,
central banks define target reference points (Target) to
increase the money supply, in connection with which
this kind of practice is called "monetary targeting“.

11.  Essential role for the effective regulation of the
dynamics of money supply with the help of
targets has the order of their establishment or in
the form of check digits (France) or "forks"
(USA) or forecast (Japan).

12. The main methods of cash flow, which is used
by the central bank - conducting credit,
investment and foreign exchange transactions.
The central bank completely determines the
value of M0 money supply by creating money
and withdrawing them from circulation
directly in the course of their operations.

13.  In a relatively stable set of credit instruments,
technical equipment payments, disability of
established for commercial banks normative
indicators of values ​​M0, M1 and M2 can be traced
fairly high correlation. It allows central banks to
control any of the parameters of the money supply
by changing the monetary aggregate M0. Thus,
central banks fully control the money supply,
quickly regulating its value depending on the target
set.

14.  In different countries and in different periods as
benchmarks is chosen different indicators of
money supply. The choice of monetary aggregate
as regulator typically is determined by the final
objective of monetary policy. Thus, the unit of M1
is associated with the scale of the purchasing
power of individuals. Broader monetary aggregates
M2 and M3 include a significant portion of
financial assets that can not be used immediately.
Depending on the central bank goals (just
lowering inflation, achieving economic growth),
for the landmark is elected a particular monetary
aggregate.