In a period of hyperinflation, the velocity of circulation increases because
A) households and firms spend money as soon as they receive payment.
B) the nominal interest rate decreases.
C) potential GDP increases.
D) the real interest rate rises.
E) money is valuable everyone wants it.

Question

Quizplus · Accepted Answer

In a period of hyperinflation, people tend to spend the money as soon as they receive it because they know that the value of money will decrease rapidly, leading to an increase in the velocity of circulation.

In a Period of Hyperinflation, the Velocity of Circulation Increases