How well fiscal policy works depends on how much the velocity of money can be changed by government tax and spending decisions.
Fiscal policy will ultimately change only the government and private sector's share of spending unless the velocity of money changes.

Question

Quizplus · Accepted Answer

Fiscal policy affects aggregate demand through government spending and taxation, but its effectiveness also depends on the velocity of money, which influences how quickly money circulates in the economy.

How Well Fiscal Policy Works Depends on How Much the Velocity