Which of the following would cause an increase in the velocity of money?
A) an increase in the use of credit cards
B) an increase in the money supply
C) an increase in the demand for money
D) a decrease in the rate of interest
E) a decrease in nominal GDP and a constant money supply

Question

Quizplus · Accepted Answer

An increase in the use of credit cards would lead to a faster circulation of money, thereby increasing the velocity of money. Credit cards enable people to spend money quickly and easily, without the need for physical cash, which can increase the number of transactions and the speed at which money changes hands.

B) An increase in the money supply would have the opposite effect on the velocity of money, as it would lead to a decrease in the demand for money and a decrease in the rate of interest, resulting in slower circulation of money.

C) An increase in the demand for money may lead to an overall decrease in the velocity of money, as people hold on to their cash for longer periods of time.

D) A decrease in the rate of interest may lead to an increase in borrowing, but it may also lead to a decrease in the velocity of money, as people may be less inclined to spend money if they can earn more by saving it.

E) A decrease in nominal GDP and a constant money supply would likely lead to a decrease in the velocity of money, as people may be less inclined to spend money when the overall economy is contracting.

Which of the Following Would Cause an Increase in the Velocity