Which of the following is true?
A) Measuring money supply using M2 reduces fluctuations in velocity.
B) Measuring money supply using M1 reduces fluctuations in velocity.
C) Measuring money supply using M2 increases fluctuations in velocity.
D) Velocity does not depend on which money supply measurement we use.

Question

Quizplus · Accepted Answer

Measuring money supply using M2 reduces fluctuations in velocity. This is because M2 includes more liquid assets and is less sensitive to shifts in the types of financial instruments that households and businesses use to make transactions, leading to a more stable velocity of money.

Which of the Following Is True