Velocity is not constant if
A) the money supply does not depend on the interest rate.
B) the supply of money depends on the interest rate.
C) the price level increases as aggregate output increases.
D) the demand for money depends on the interest rate.

Question

Quizplus · Accepted Answer

Velocity of money is a measure of the rate at which money is exchanged in an economy. It is not directly related to the money supply's dependence on interest rates (choices A and B) or to the relationship between the price level and aggregate output (choice C). However, if the demand for money depends on the interest rate (choice D), it implies that the velocity of money can change as interest rates influence how much money people want to hold versus spend. This can lead to variations in velocity, indicating that it is not constant.

Velocity Is Not Constant If