Which of the following factors cause velocity to fluctuate?
I.changes in interest rates
II.changes in expectations about inflation
III.changes in expectations about bond prices
IV.an increase in the number of financial products that affect the demand for money

Question

Quizplus · Accepted Answer

All four factors listed can cause changes in the demand for money and therefore affect velocity. An increase in interest rates can lead to a decrease in the demand for money as people choose to save more and borrow less, which can decrease velocity. Changes in inflation expectations can also impact the demand for money and velocity. If people expect higher inflation, they may be more likely to spend money quickly, increasing velocity. Changes in expectations about bond prices can similarly impact the demand for money and velocity. Finally, an increase in the number of financial products can change the way people hold and use their money, impacting velocity. Therefore, all four of these factors can cause fluctuations in velocity.

Which of the Following Factors Cause Velocity to Fluctuate