Stable velocity as a contributing factor to successfully using money growth as a stabilizing monetary policy tool, is more important in an environment where:

Question

Quizplus · Accepted Answer

In an environment where inflation is low (e.g., less than 10 percent), stable velocity is more important to successfully using money growth as a stabilizing monetary policy tool. This is because at low levels of inflation, the problems caused by a variable velocity are still significant and can lead to economic instability. At extremely high levels of inflation (option A), the instability caused by velocity fluctuations may be overshadowed by the larger macroeconomic issues at play. The situation with deflation (option D) would require different policy tools altogether to address.

Stable Velocity as a Contributing Factor to Successfully Using Money