Define the velocity of the money supply.

The velocity of money supply is a measure of the frequency at which an average unit of currency is used for purchasing goods and services in an economy. It can be calculated using the formula: \[V = \frac{P \times T}{M}\], where \(V\) is the velocity of money, \(P\) is the price level, \(T\) is the number of transactions, and \(M\) is the money supply. For example, with a money supply of \(2,000,000, a total number of transactions of 400,000, and an average price of goods and services at \)10, the velocity of money is calculated as: \[V = \frac{10 \times 400{,}000}{2{,}000{,}000}\], resulting in a velocity of 2, meaning each unit of currency is used twice for purchasing goods and services in the economy.