In most cases, higher interest rates cause the velocity of M1 to
A) turn negative.
B) move erratically.
C) increase.
D) decline.

Question

Quizplus · Accepted Answer

Higher interest rates typically encourage people to hold less money in cash or checking accounts (components of M1) and instead invest in interest-bearing assets, leading to an increase in the velocity of M1 as money circulates more quickly through the economy.

In Most Cases, Higher Interest Rates Cause the Velocity of M1