If the demand for money increases, this will:
A) increase velocity.
B) decrease velocity.
C) have no effect on velocity.
D) cause the Fed to increase the money supply.

Question

Quizplus · Accepted Answer

An increase in demand for money means that people want to hold onto more of their money instead of spending it, which will decrease velocity. Velocity is the rate at which money is exchanged in the economy, and a decrease in velocity means that money is changing hands less frequently. The Fed's response to an increase in demand for money would depend on the underlying reasons for the increase and the broader economic conditions.

If the Demand for Money Increases, This Will