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

When inflation is low, stable velocity becomes more important as the problems caused by unpredictable shifts in velocity can be just as severe at low levels of inflation as at high levels of inflation. In an environment with high inflation (option A), the focus shifts to reducing inflation rather than stabilizing the monetary policy tool. In an environment of deflation (option D), the focus would be on increasing the money supply, not stabilizing it.

Stable Velocity as a Contributing Factor to Successfully Using Money