Which of the following factors may cause velocity to fluctuate?
I. changes in interest rates
II. changes in expectations about inflation
III. changes in expectations about bond prices
IV. an increase in the number of financial products that affects the demand for money

Question

Which of the following factors may cause velocity to fluctuate? 
I. changes in interest rates
II. changes in expectations about inflation
III. changes in expectations about bond prices
IV. an increase in the number of financial products that affects the demand for money

Quizplus · Accepted Answer

All four factors listed can affect velocity. Changes in interest rates and expectations about inflation can affect the opportunity cost of holding money, leading to changes in the demand for money and velocity. Changes in expectations about bond prices can also affect the demand for money, as bonds and money are substitutes. An increase in the number of financial products can affect the demand for money, as people have more options to store their wealth, potentially reducing the demand for money and velocity.

Which of the Following Factors May Cause Velocity to Fluctuate