During hyperinflation, the value of money drops so quickly that people would not want to hold money balances for very long. This will cause:
A) the money supply to decrease.
B) the inflation to decrease.
C) the nominal interest rate to decrease.
D) velocity to increase.

Question

Quizplus · Accepted Answer

During hyperinflation, people tend to spend their money quickly, leading to an increase in velocity (the rate at which money changes hands). This is because holding onto money becomes risky as its value drops rapidly. Therefore, the correct answer is D - velocity increases during hyperinflation. The other options are incorrect - the money supply may increase or decrease depending on government actions, inflation is unlikely to decrease during hyperinflation, and nominal interest rates may not necessarily decrease in response to hyperinflation.

During Hyperinflation, the Value of Money Drops So Quickly That