Which of the following developments will most likely lead to an increase in the velocity of money?
A) a decrease in the expected inflation rate
B) an increase in money interest rates
C) a sharp decline in using credit cards
D) a decrease in real income

Question

Quizplus · Accepted Answer

An increase in money interest rates will incentivize individuals and firms to spend money instead of holding onto it, as they can earn a higher return by investing it. This will lead to an increase in the velocity of money, which is a measure of how frequently money changes hands in the economy. A decrease in expected inflation rates may also increase the velocity of money, but to a lesser extent. A sharp decline in using credit cards or a decrease in real income are likely to result in a decrease in the velocity of money.

Which of the Following Developments Will Most Likely Lead to an Increase