To offset the effect of negative growth in money velocity ( $\vec { v }$ ),the central bank should:
A) decrease the growth rate of the money supply.
B) increase the growth rate of the money supply.
C) apply a policy that stabilizes the growth in money velocity.
D) apply a policy that reduces the growth in money velocity.

Question

Quizplus · Accepted Answer

If there is negative growth in money velocity, which means that the same amount of money is being used less frequently, then increasing the growth rate of the money supply can help offset this effect. When there is more money in circulation, the overall effect will be to increase aggregate demand and potentially lead to higher levels of economic activity. This is not a perfect solution, as there may be other factors affecting money velocity, but it is a reasonable policy option for addressing this issue.

To Offset the Effect of Negative Growth in Money Velocity v⃗\vec { v }v

To Offset the Effect of Negative Growth in Money Velocity $\vec { v }$