Question 1

If financial news broadcasts reported that inflation was likely to rise significantly next year,what would most likely happen to the velocity of circulation?

Accepted Answer

The answer of If financial news broadcasts reported that inflation...

Question 2

When analyzing how money affects income,we are analyzing the way in which a

Accepted Answer

Money, in this context, is considered a stock (a quantity measured at one point in time), and income is a flow (a quantity measured over a period of time). Therefore, analyzing how money affects income is analyzing how a stock affects a flow.

Question 3

The reason that velocity increases when interest rates rise is

Accepted Answer

When interest rates rise, the opportunity cost of holding money increases because individuals could earn a higher return by investing their money elsewhere. As a result, people tend to hold smaller cash balances and money moves faster, leading to an increase in velocity.

Question 4

What is the effect on velocity if payments are made more often?

Accepted Answer

Velocity is calculated by dividing the total amount spent in a period by the average level of money. If payments are made more often, the average level of money will decrease, leading to an increase in velocity.

Question 5

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of nominal GDP was approximately

Accepted Answer

The answer of Economists observed the following growth rates in...

Question 6

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period,what would be the effect on velocity?

Accepted Answer

In a period of zero inflation, people and businesses may be less likely to spend money because prices are not increasing. This leads to a decrease in velocity, which measures the speed at which money is changing hands in the economy.

Question 7

In the second quarter of 1995,the following values were observed: real GDP = 4,359.3 billion; GDP Deflator = 325.1; and M₁ = 989.5.What is the value of velocity?

Accepted Answer

Velocity is calculated as nominal GDP divided by the money supply (M1). Nominal GDP is real GDP multiplied by the GDP Deflator (4,359.3 * 325.1). Then, divide by M1 (989.5) to get the velocity.

Question 8

In 2005-2006,the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?

Accepted Answer

The answer of In 2005-2006,the Fed increased interest rates in...

Question 9

Which of the following would tend to decrease velocity?

Accepted Answer

The answer of Which of the following would tend to...

Question 10

As the price level rises,the demand for money

Accepted Answer

When the price level rises, each transaction requires more money to be spent, so there is an increase in demand for money. This is because the purchasing power of money decreases as prices rise. Choice A is incorrect because interest rates may or may not increase with the price level, and even if they do increase, it would not necessarily decrease the demand for money. Choice B is incorrect because it suggests that consumers would buy fewer goods and services, which would decrease the demand for money, but it does not explain why the price level has risen in the first place. Choice D is incorrect because investment spending is not directly related to the demand for money.

Question 11

In 2007-2009,the Fed cut interest rates to limit the international financial crisis.What is the effect of this on velocity?

Accepted Answer

Lowering interest rates incentivizes borrowing and spending, which can lead to an increase in economic activity. However, this can also lead to a decrease in the velocity of money, as people may hold onto their money for longer periods of time due to the lower interest rates. This is because they are not as incentivized to invest or spend their money quickly in order to earn a higher return. As a result, the velocity of money typically decreases when interest rates are lowered.

Question 12

The principal factor determining velocity is the

Accepted Answer

The answer of The principal factor determining velocity is the
...

Question 13

Velocity can be computed with the formula

Accepted Answer

The answer of Velocity can be computed with the formula
...

Question 14

In the short run,an increase in the quantity of money normally

Accepted Answer

The answer of In the short run,an increase in the...

Question 15

Many banks offer accounts featuring "Automatic Transfer from Savings" allowing customers to overdraw checking accounts and the bank will transfer enough funds to cover the check automatically.Most likely,what is the effect of this feature on velocity?

Accepted Answer

By allowing customers to overdraw their checking accounts and automatically transferring funds from their savings accounts, it is easier for them to spend money, thus increasing the velocity of money.

Question 16

Following an anticapitalist coup,Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

Accepted Answer

If all citizens are forced to stop using credit cards, the total amount of money spent on purchases will decrease. This will likely cause a decrease in the velocity of money, as there will be less money changing hands in transactions.

Question 17

Which one of the following will cause velocity to increase?

Accepted Answer

The answer of Which one of the following will cause...

Question 18

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of velocity was approximately

Accepted Answer

The answer of Economists observed the following growth rates in...

Question 19

As we approached the end of the millennium,many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters.What effect would this have had on velocity if many people had been foolish enough to follow this advice?

Accepted Answer

If many people had followed the advice to hold cash, it would have decreased the velocity of money because cash would have been sitting idle instead of being used for transactions. Velocity measures the rate at which money is exchanged in the economy, so a decrease in cash transactions would lead to a decrease in velocity.

Question 20

How will an increase in the efficiency of the payments mechanism effect velocity?

Accepted Answer

An increase in efficiency of the payments mechanism means there is less lag time between when a payment is made and when it is received by the recipient. This allows for faster circulation of money, which increases the velocity of money.

Quiz 15: The Debate Over Monetary and Fiscal Policy

If financial news broadcasts reported that inflation was likely to rise significantly next year,what would most likely happen to the velocity of circulation?

When analyzing how money affects income,we are analyzing the way in which a

The reason that velocity increases when interest rates rise is

What is the effect on velocity if payments are made more often?

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of nominal GDP was approximately

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period,what would be the effect on velocity?

In the second quarter of 1995,the following values were observed: real GDP = 4,359.3 billion; GDP Deflator = 325.1; and M1 = 989.5.What is the value of velocity?

In 2005-2006,the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?

Which of the following would tend to decrease velocity?

As the price level rises,the demand for money

In 2007-2009,the Fed cut interest rates to limit the international financial crisis.What is the effect of this on velocity?

The principal factor determining velocity is the

Velocity can be computed with the formula

In the short run,an increase in the quantity of money normally

Many banks offer accounts featuring "Automatic Transfer from Savings" allowing customers to overdraw checking accounts and the bank will transfer enough funds to cover the check automatically.Most likely,what is the effect of this feature on velocity?

Following an anticapitalist coup,Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

Which one of the following will cause velocity to increase?

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of velocity was approximately

As we approached the end of the millennium,many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters.What effect would this have had on velocity if many people had been foolish enough to follow this advice?

How will an increase in the efficiency of the payments mechanism effect velocity?

In the second quarter of 1995,the following values were observed: real GDP = 4,359.3 billion; GDP Deflator = 325.1; and M₁ = 989.5.What is the value of velocity?