What does a high velocity of money indicate in an economy?

A high velocity of money indicates a greater transaction volume within an economy. Velocity of money refers to the rate at which money is exchanged in an economy over a given period. When the velocity is high, it suggests that money is being used more frequently to facilitate transactions, which can signal a robust level of economic activity and consumer confidence.

This increased frequency of transactions can arise from various factors, such as rising consumer demand and efficient payment systems. An economy where money circulates rapidly often experiences higher levels of spending, which can lead to growth. In contrast, a low velocity of money could indicate that money is holding within the economy, perhaps due to decreased spending and investment, which may signal stagnation or economic uncertainty.

Thus, the correct answer highlights the clear relationship between high money velocity and increased economic transactions, emphasizing the importance of money flow in driving economic activity.