The assumption of constant velocity is equivalent to assuming that the demand for real money balances depends on:
A) income alone.
B) the interest rate alone.
C) income and interest rates.
D) people economizing on real balances as the interest rate rises.

Question

Quizplus · Accepted Answer

The assumption of constant velocity implies that the demand for real money balances is proportional to income alone, without being affected by changes in the interest rate.

The Assumption of Constant Velocity Is Equivalent to Assuming That