In the classical theory of aggregate demand,a decrease in the velocity of money leads to

Question

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According to the classical theory of aggregate demand, the quantity theory of money states that an increase in the money supply leads to an increase in the price level and no change in output. Similarly, a decrease in the velocity of money (the number of times money changes hands in a given period) leads to a decrease in the level of aggregate demand, which leads to a downward shift in the aggregate demand curve. This shift causes a fall in prices while output remains unchanged. Therefore, option A is the correct answer. Option B is incorrect because a decrease in the velocity of money leads to a decrease in aggregate demand, not an increase. Option C is incorrect because a higher velocity of money leads to an increase in the money supply if other factors remain constant. Option D is incorrect because a decrease in the velocity of money leads to a downward shift in the aggregate demand curve, not an upward shift.

In the Classical Theory of Aggregate Demand,a Decrease in the Velocity