In the quantity theory of money, velocity is assumed
A) to equal 1.4.
B) constant.
C) to increase with increases in the money supply.
D) to be a declining number.

Question

Quizplus · Accepted Answer

In the quantity theory of money, velocity is assumed to be constant. This means that the rate at which money changes hands in the economy remains stable, regardless of changes in the money supply. This assumption is based on the idea that people and businesses will only hold onto money for as long as it takes to make necessary transactions, and economic activity will continue at a relatively stable pace.

In the Quantity Theory of Money, Velocity Is Assumed