When interest rates decline to low levels following the recession of 2008-2009, individuals and businesses
A) held larger money balances and the velocity of money fell.
B) held smaller money balances and the velocity of money fell.
C) held larger money balances and the velocity of money increased.
D) held smaller money balances and the velocity of money increased.

Question

Quizplus · Accepted Answer

When interest rates are low, the opportunity cost of holding money decreases, leading individuals and businesses to hold larger money balances. This typically results in a decrease in the velocity of money, as money circulates more slowly through the economy.

When Interest Rates Decline to Low Levels Following the Recession