Why could very high rates of inflation cause velocity to increase?
A) The more people earn,the faster they spend it.
B) The more money loses its value,the faster people try to spend it.
C) The more people earn,the faster prices rise.
D) The more inflation there is,the more there is to buy.

Question

Quizplus · Accepted Answer

Very high rates of inflation cause the value of money to decrease rapidly, which incentivizes people to spend it faster before it loses even more value. This can lead to an increase in velocity, which measures how quickly money changes hands in the economy. Choice A is not necessarily true because people may choose to save some of their increased earnings rather than spend it all immediately. Choice C is not directly related to velocity. Choice D is incorrect because inflation does not increase the amount of goods and services available for purchase.

Why Could Very High Rates of Inflation Cause Velocity to Increase