According to the quantity equation,if velocity is not assumed to be constant and the money supply is held constant,then an increase in the interest rate ______ velocity and ______ income.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

An increase in the interest rate typically increases the velocity of money as people and businesses are incentivized to spend or invest money rather than hold onto it. This increased spending can lead to an increase in income.

According to the Quantity Equation,if Velocity Is Not Assumed to Be