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The most important variable that mediates the effects of changes in the money supply is the velocity

# The most important variable that mediates the effects of changes in the money supply is the velocity

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The most important variable that mediates the effects of changes in the money supply is  the velocity of money. Imagine that you purchase a hamburger. The waiter then takes  the money that you spent and uses it to pay for his dry cleaning. The dry cleaner then  takes that money and pays to have his car washed. This process continues until the bill  is eventually taken out of circulation. In many cases, bills are not removed from  circulation until many decades of service. In the end, a single bill will have facilitated  many times its face value in purchases.  Velocity of money is defined simply as the rate at which money changes hands. If  velocity is high, money is changing hands quickly, and a relatively small money supply  can fund a relatively large amount of purchases. On the other hand, if velocity is low,

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The most important variable that mediates the effects of changes in the money supply is the velocity

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