Suppose at present people hold a quantity of money equal to 85% of nominal GDP. What happens to velocity if people wish to increase their money holdings to 80% of nominal GDP?
A) Velocity can increase or decrease depending on people's tastes and preferences toward money.
B) Velocity is unaffected.
C) Velocity increases.
D) Velocity decreases.

Question

Quizplus · Accepted Answer

Velocity increases because people are holding a smaller proportion of their income as money, meaning money circulates faster.

Suppose at Present People Hold a Quantity of Money Equal