A rising rate of inflation:
A)makes people more willing to hold money as an asset.
B)reduces the usefulness of money as a store of value and thus increases the velocity of money.
C)increases the usefulness of money as a medium of exchange and thus reduces the velocity of money.
D)is usually preceded by a reduction in the money supply.
E)does not have any effect on the velocity of money.

Question

Quizplus · Accepted Answer

When the rate of inflation rises, the purchasing power of money decreases, which reduces the usefulness of money as a store of value. As a result, people are more likely to spend money quickly, which increases the velocity of money.

A Rising Rate of Inflation