In 2007-2009, the Fed cut interest rates to limit the international financial crisis.What is the effect of this on velocity?

Question

Quizplus · Accepted Answer

When interest rates decrease, borrowing becomes cheaper and people tend to borrow more to invest in various sectors, creating demand and increasing the money supply. This, in turn, lowers the demand for money and reduces velocity. Therefore, the correct choice is A) velocity will decrease.

In 2007-2009, the Fed Cut Interest Rates to Limit the International